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Ignore The Words Of The Politicians: Buy Solar


Drawing conclusions about trading and investing based on the words of any politician is a dangerous game at the best of times, and the evidence so far suggests that that is even more the case when it comes to President Trump. He is, as businessmen usually are, a pragmatist at heart. The lack of a politician’s clear ideology makes him react to each situation as he sees fit, regardless of what he said or did in the past. Now you may see that as a good thing or a bad thing, but the one thing that it undeniably is is confusing. So, if the President’s words essentially mean nothing, where is a poor trader to look for inspiration?

A much better guide as to policy can be divined by looking at the record of his appointees, and from that perspective one of the assumptions about Trump’s energy policy looks to be mistaken. Candidate Trump’s strong support of fossil fuels, with talk of revitalizing the coal industry and releasing America’s resources of oil and gas, naturally led to the assumption that the alternative energy sector, solar and wind power in particular, would suffer under his administration. To many the appointment of Rick Perry, former Governor of oil rich Texas, as Energy Secretary confirmed that view.

If we look at Perry’s actual record in Texas, though, that assumption looks erroneous. Sure, he did whatever he could to facilitate oil and gas extraction, minimizing regulations and restrictions at the state level. What many don’t realize though is that under Perry Texas also saw huge increases in its capacity for both solar and wind power. So much so that the Lone Star State was a rapidly rising number 9 on the list of top U.S. solar energy states and, most surprisingly to many people, a clear number 1 in wind power.

It appears then that, like Trump, Perry is a pragmatist. He may utter the required phrases for a Republican when it comes to energy, but he is not afraid to hedge his bets. In the light of that it is clear that there are long term bargains to be had in alternative energy stocks going forward. For me that means solar power. I have nothing against wind, but, as I have pointed out in the past it is a hard sector in which to invest. The biggest players in the field are giants like GE where wind power represents only a fraction of their overall performance. That also makes smaller, more direct wind power plays look vulnerable. You always get the feeling that the big boys could crush them at any time.

Solar power, on the other hand, has established specialist companies and, best of all, the leaders in the field have a record of profitability. Take Jinko Solar (JKS) for example. They have been profitable for a long time and have actually beaten estimates for EPS in ten of the last twelve quarters. You would think that a stock like that would be showing strong performance but here is what the chart for that three year period looks like.

(Click to enlarge)

As you can see it has been a steady sustained decline despite all of those beats. That has been the pattern for many solar stocks as companies have been successful, but failed to live up to the overhyped expectations of a few years ago. Over the last couple of months, though, it has become clear that the selling was overdone, as evidenced by the bullish channel marked on the chart.

That channel also provides a decent level to set a stop loss order. Buying JKS at current levels (around $17 at the time of writing) with a stop just below the channel, say at around $14.50 looks like a risk controlled trade with a lot of potential upside. If nothing else it would be nice to make money for once off the fact that the words of politicians cannot be trusted!

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