Is First Solar A Buy?

12/08/11 09:43:36 AM

by Matt Blackman

This former stock market high-flier has had some hard times lately. But with Warren Buffett now on board, has the picture changed?

Security: FSLR
Position: N/A

Anyone who was unaware of the challenges facing the solar industry in the last year was quickly brought up to speed with the news in November 2011 of the bankruptcy of solar panel manufacturer Solyndra after receiving more than $500 million in US government assistance. It was a stark revelation about just how challenged the industry had become.

FIGURE 1: FSLR, DAILY. Here, First Solar Inc. shows the recent history together with the Market Vectors Global Alternative Energy ETF (GEX). Is the recent rise temporary or could it be the start of a new trend?

Graphic provided by: FreeStockCharts.com.

First Solar Inc. (FSLR) was no exception. Over the space of eight months, its stock price fell from more than $160 in April to less than $50 by late November. But as November wound to a close, the stock slowly began to show signs of life.

On December 7, we learned that Warren Buffett's MidAmerican Energy Holdings utility had agreed to inject $2 billion into FSLR's Topaz Solar Farm, which is expected to be the largest photovoltaic power plant in the world, according to Bloomberg News. The project will generate enough power to supply 160,000 homes when completed.

Talk about a vote of confidence in the industry! No doubt the fact that although tax credits for wind-powered projects are set to expire next year, that tax credits for solar power would continue until 2015 factored in the decision.

From a trader's perspective, the chart looks compelling. Coming out of a steep dive in what could be a U-shaped recovery with a breach in the downsloping trendline was a short-term buy signal, except that the relative strength index (RSI) was in the sell zone, which means more time will be required to confirm that the move will last.

But given that oil prices are again on the rise and the news story that global oil production is declining at 7% per annum makes solar look attractive from a fundamental standpoint. And it appears to be a position with which Buffett agrees, if his recent actions are any indication.

Matt Blackman

Matt Blackman is a full-time technical and financial writer and trader. He produces corporate and financial newsletters, and assists clients in getting published in the mainstream media. He is the host of TradeSystemGuru.com. Matt has earned the Chartered Market Technician (CMT) designation. Find out what stocks and futures Matt is watching on Twitter at www.twitter.com/RatioTrade

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Is First Solar A Buy?

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