Kennouth Learning and Research: What's in Solar's Way

Kennouth Investments, Learning, and Research

31 July 2013

What’s in Solar’s Way?

Earlier this week, there was an article posted by the Motley Fool blog on the subject of oil not being a major setback for solar energy.  But don’t get complacent, big oil’s not going away anytime soon.  While the growth of solar companies has been outperforming the other energy sectors in many categories, its stock price for example, they will start to face increasing competition from more traditional companies.  As mentioned in the Fool piece, SolarCity has experienced incredible momentum this year.  From 2011 to 2012, revenues more than doubled from 59.5 million 128.6 million, they still reported a net loss of 91 million dollars.  However, two, Exxon Mobil and Dutch Royal Shell, of the five world’s largest companies, are oil companies.  And when you Yahoo! search “solar city,” Chevron appears on the link list before SolarCity does.

SolarCity

Kennouth Investments bought this stock in the past, made a generous amount of money, and has sold it since.  SolarCity had their IPO on December 13^th, 2012, and since its eight dollar debut, it first climbed all the way to $52.17.  After a correction, it also had a profitable run from $32.66 to $44.98, a gain of almost 38%.  At the same time, that’s a ton of volatility worth risking for.  They have been reported to have great business models and forecasts, they’re in financial agreements with powerful banks like Bank of America (BAC) and Goldman Sachs (GS), and chaired by the founder and CEO of Tesla Motors, Elon Musk.  This company does have a lot going for them, but the stock is running out of steam, hitting a cushion at best.  Since its 8% drop on July 26^th, it has struggled to stay or close above $42.50.  Technically, using Fibonacci levels on a six month low to high pattern, it needs to break above about $43.75 for it to keep growing.  Credit Suisse recently raised its 12 – month price target on SCTY from $28 to $52.  There’s a lot of moving parts with SCTY, but maybe a little too much.  They are involved with so many other companies, Walmart and Honda being a couple more.  Every headline and speculation shakes this stock.  I do believe the stock will reach above fifty dollars again, but I would like to see it hold above or bounce off around $38 before buying it.

Sunedison

            Sunedison has been on the market much longer than SolarCity has.  Since its founding ten years ago, the stock has definitely seen better days, as it did pre-2008 when it reached $96.  Now it’s recovering at more than ten bucks from an all-time low of $1.44.  And despite being at year highs, this is a stock I wish I owned.  If possible, this is one of those stocks that traders would love to buy on a big dip.  Studying the MACD, it’s of my belief that SUNE has either finished a head and shoulder pattern, or is entering a new one.   I prefer the latter, because I’m thinking it should hit at the least $12.50 and $17 at the most by year end.  Furthermore, should the stock drop from here, there’s no way the bulls will let it fall below $9.  To accentuate that belief, nine dollars is already below the middle regression line.  But I’m not willing to lose ten percent, so I would wait till Friday’s data reports before buying this one.

Cloudy, Stormy and Clear Skies for the Solar Industry

            The most probable competitor to solar is most likely coal and oil companies.  Coal supporters are fearful of whole communities going jobless due to mine shutdowns.  But realistically, the coal mining industry has been on the decline for decades, and I don’t see that stopping.  Oil is definitely going to put up a lot more defense.  With one third of US workers making less than $24,000 (as reported by CNBC), the high price of hybrid vehicles or Teslas is nowhere near economically feasible for a large amount of people.  And now in the near future, Ford will be offering F-150s that run on natural gas. 

The oil industry is also undergoing another boom with shale and fracking technologies.  These new methods and discoveries, called a “gift from God,” by Jamie Dimon, will only make the oil companies more profitable.  But if there’s a degreaser for the sludge, auto companies and the government are going to be a part of it.  That’s only going to come with cheaper and similar cars to Tesla’s models, and a government incentivizing and being able to compromise to produce effective legislation.  While President Obama’s been in office, oil production is at all-time highs, but blocking the Keystone Pipeline legislation isn’t helping the prospects for oil investors.  He has also initiated plans to make the military 20% solar dependent by 2020.  And companies like SolarCity and Tesla probably wouldn’t exist if President Obama wasn’t elected.  With the way Washington behaves and “legislates” it does now, don’t expect much more stimulus from the government.  Aside from the domestics, rebellions across the Middle East, such as the ones in Egypt and Syria give more reason not to be bullish on oil.  Solar energy is on the path to being the dominant means of electricity and power, but is it going to happen tomorrow?  No, no way.

Sources

CNBC

http://beta.fool.com/yieke/2013/07/26/us-shale-boom-will-have-minimal-impact-on-alternat/41630/?logvisit=y&source=eednaslnk0000001&published=2013-7-26

http://secfilings.nasdaq.com/edgar_conv_html%2f2013%2f03%2f27%2f0001193125-13-129655.html#D508901D10K_HTM_TOC508901_14

Charts courtesy of TDameritrade thinkorswim software.

Disclaimer: Trading stocks has extremely high risks, and should not be taken to lightly without a thorough understanding. This is written from a purely commentary point of view and is not meant to suggest buying, selling, or holding a stock. All traders must do their own research prior to investing. We (Kennouth Investments, Learning and Research) are unaffiliated with all of the companies that are mentioned on this blog, and can't be held responsible for any losses that may occur. Invest at your own risk.

Kennouth Investing: Positions

Kennouth Investments

29 July 2013

Positions:

BAC, F

The BAC Trade

I first bought this stock at $13.46, then added shares later at $12.58, and the stock has touched $15.00 in the past week.  There were multiple reasons for buying this stock, and there were many indicators that pointed me in the right direction.  The housing recovery, though not as strong as it we would all like it to be, is still strong.  Because of that, someone needs to be financing all of those mortgages, so the big banks and small banks will benefit from housing growth.  As the second largest bank in America, I thought it would be a safe bet.  Also, bond rates are starting to go back up, and banks know how and are the first to adjust their at-risk money.  There was also an article I read about an insider purchase of shares, and if I’m not mistaken, it was around $11.50.  Reports of insider purchases are always good headlines to watch for, and depending on the strength of the economy and their business, they can be seen as both good and bad omens.  Lastly, their quarterly earnings were fantastic, outperforming nearly every other large cap bank.  As of today, it has a p/e ratio of 33.6x, and pays a small dividend of four cents.  And there’s the chart:

While I do expect a correction in the near term future, I believe this stock should hit $15.50 before coming back down to find a good bouncing point on the regression channels.  Another good thing to remember is that if you bought this stock anytime in the past six weeks, you’ve made a good amount of money, even if you’re conservative and took in profits already.  But I’m still riding the bull on this one, hoping he’s still got steam to charge.

The Ford Trade

While its stock price plummeted during the financial crisis of 2008-09, Ford has stood out among the other automakers.  They never received a bailout, so the government doesn’t own any shares, unlike GM.  If you were smart enough to buy this at its low of a dollar in 2008, your money is now worth seventeen times as much.  But that’s not why I bought this stock.  Month after month this past quarter, Ford posted great sales numbers here in America, as well as China and India.  Their hybrid car sales were at an all-time high last month, and pick-up truck sales also soared.  They make as much as $10,000 from every F-150 sale, by the way.  Just this year the stock is up about 25%.  One of the latest announcements was the employment of 3,000 more workers by year end.  With all of these things going for Ford, why would you not want to own the stock?  That’s why I bought the stock before earnings.  It’s had a good run just this past six weeks, but since it crossed seventeen, it seems it’s building support there.  As of late, it’s gone through an upward trend, leading me to believe it should shoot up sometime soon, likely this week.  The chart also shows that while the price is at a high point in the regression channels, it still has favorable signs for new multiyear highs for the rest of the year. I strongly believe this stock has a good chance to hit $19.50 by year’s end.

Why the Bulls Will Win this Week

In a few days, multiple data reports will be released: non-farm payrolls, GDP report, and auto sales are three of them.  With more than 60% of companies beating their estimates, I’m expecting GDP to also beat estimates, and non-farm payrolls should at least meet estimates.  And from all of the encouraging data looming over the auto industry, those sales should also be a plus for the market.  Due to all of these factors, that’s why I purchased shares, just a few days ago.  It’s also another reason why I’m bullish on the market in general as well.



Charts courtesy of TDAmeritrade's thinkorswim software.

Disclaimer: Trading stocks has extremely high risks, and should not be taken to lightly without a thorough understanding. This is written from a commentary point of view and is not meant to suggest buying, selling, or holding a stock. All traders must do their own research prior to investing. We (Kennouth Investments, Learning and Research) are unaffiliated with all of the companies that are mentioned on this blog, and can't be held responsible for any losses that may occur. Invest at your own risk.