We're keeping it short today while we attend our annual Spring Editors Conference, held this year at a resort on the Georgia coast.
Longtime readers know we're bearish on solar power. And our thesis proved to be correct...
We first started shorting the sector (through solar bellwether First Solar) in January 2008. In that issue, Porter asked if First Solar was "the most overvalued stock in the world." The stock was trading at $225 per share at the time (near its all-time high). Today, it trades for less than $19 a share. (You can read our latest thoughts on First Solar here.)
If you missed your opportunity to short solar the first time around, your second opportunity may be here... The sector rallied today after Citigroup analyst Timothy Acruri called a bottom in the solar sector. He noted improving sales in Europe (where the government subsidizes the sector). Despite Citigroup's optimism... nothing has changed about the solar-energy industry's fundamental flaws... The products don't work in heat, the businesses depend on government subsidies, and the prices of panels are plummeting. These weaknesses will eventually outweigh a short-term spike in sales.
As regular Digest readers know... we disdain IPOs nearly as much as solar-energy companies... Investing in them is a fool's game. You see, most businesses go public for one reason – so the principals can cash out. The principals want to squeeze the market for as much money as possible. The Wall Street banks, which earn huge fees from the principals for arranging these offerings, cram the IPO shares down the throat of every buyer they can find – hoping to drive up the stock price. In the end, the public is left holding shares in an overhyped, often ill-performing company.
Now... imagine if you could combine a bloated solar power company with an IPO. It would seem like an ideal short-sale opportunity...
Yesterday, SolarCity, a leading installer of rooftop solar panels, said it filed paperwork with the Securities and Exchange Commission last week, indicating its interest in going public. Company executives wouldn't comment on the potential IPO.
This first step toward a public offering comes as the solar industry is scaling back... First Solar and SunPower are firing employees and halting operations. Another solar power company, BrightSource, canceled its IPO a few weeks ago. Enphase – a company that makes "solar inverters" (a key component in the panels that converts the solar energy into current for the power grid) – recently went public and sold its shares for half the target price. LDK Solar, the world's second-largest maker of wafers for solar cells, announced yesterday it cut 5,554 jobs (22% of its workforce) this year. Eight solar companies have filed bankruptcy in the past year.
In short, it's a bad time to be a solar company. It's a terrible time to be a solar company trying to sell shares to the public. If shares of SolarCity rally out of the gate, we'd expect a quick round trip back down...
CFO, a trade publication for financial executives, reports business lending in the U.S. has "turned a corner." According to the Federal Reserve's Senior Loan Officer Survey on Bank Lending Practices, released yesterday, domestic banks and U.S. branches of foreign banks reported easing terms for commercial and industrial (C&I) borrowers last quarter.
Around 58% of the 81 financial institutions surveyed said they decreased the spread over their cost of funds (which is essentially zero) that they charge borrowers. About 17% said they cut borrowing costs for lines of credit. In the Fed's January survey, banks said lending standards and terms were static.
The banks also reported increasing demand from businesses for new or larger lines of credit.
The survey participants said the increased lending doesn't necessarily have to do with an improving economy. They quoted "more aggressive competition" from lenders.
The reason banks are rushing to lend is simple... They make money from the "interest rate spread," the difference between what they pay to borrow money and what they charge to lend it. Dr. David "Doc" Eifrig discussed this in his latest Retirement Millionaire...
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Banking profits come from high volumes and good margins... [Right now] the interest spreads are attractive since short-term rates are so low. And with growing demand for loans at longer and longer maturities, this suggests even more profits are on the way for banks. |
In that issue, Doc also noted the increase in C&I loans and declared "the banking sector hasn't been this strong in decades."
Doc isn't the only analyst on our staff who's bullish on banks. Steve Sjuggerud and Porter also think the banking sector will rally this year... Porter called it one of "the best opportunities of the next two years."
As the government continues to manipulate interest rates and pump money into the system, the banks will profit. Doc recommended a super-safe bank stock in his latest issue. He thinks it's undervalued by around 30%. And this stock will pay you a large and increasing dividend as you wait for the market to realize its full value. It's a great way to add safe income to your portfolio today. To learn more about Retirement Millionaire and gain access to Doc's latest bank stock recommendation, click here...
New 52-week highs (as of 4/30/12): Guggenheim BulletShares High Yield Bond fund (BSJF), Abbott Laboratories (ABT), Calpine (CPN), Hershey (HSY), Altria Group (MO), and Teekay LNG Partners (TGP).
An insider's view on the beer market in today's mailbag. Has the cost of your beer gone up? Let us know... feedback@stansberryresearch.com.
"My customers want their Bud and Bud Light, and they want it in tall bottles. [Anheuser Busch InBev] downgraded their bottles. They downgraded their boxes. They have the flimsiest, cheapest, crappiest boxes in the industry resulting in extra handling. Along with their price increase that's good for their bottom line.
"My college student customers love a price break. Due to the aggravation, Bud and Bud Light never make my short list when choosing a beer to discount." – Paid-up subscriber (and bar owner) Anita Carlson
"I am not surprised of the kudos for Frank Cruzio. I subscribed to his investment letter 25 years ago and made a lot of money from his recommendations. He is about as good as it gets." – Paid-up subscriber Sledge W. Killion
Ferris comment: I believe you're talking about Frank's father... who wrote an excellent investment letter for years... But yes, his son is about as good as it gets, too.
"Well, so far [with S&A], (keep in mind some I came in late waiting on funds),
"I purchased ADP @ 50.66 – up to 55.62, MSFT @ 27.06-up to 32.01, LLY @ 37.85- up to 41.39, INTC @ 21.47 -up to 28.40, TGP@ 31.80-up to 41.44 and FDO @ 32.45- out @ 67.00. I absolutely enjoyed Doc's take on precious metals in his newsletter, had I read it sooner it could have saved me a few dollars, but that's why I'm here anyway, isn't it. Thanks." – Paid-up subscriber Tony W.
Regards,
Sean Goldsmith and Dan Ferris
Sea Island, Georgia
May 1, 2012
More bad news for the solar industry... An ideal short sale?... Bank lending picks up... Doc Eifrig: A sector that 'hasn't been this strong in decades'...