Solar Flares: Why Chinese Solar Stocks Are Shining

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Last week saw three Chinese solar stocks rise more than 20%, with about half that gain coming on Friday following an upgrade to Buy from Deutsche Bank on Trina Solar Ltd. (NYSE: TSL) and Yingli Green Energy Holdings Co. Ltd. (NYSE: YGE). The impetus for the upgrades comes from a commitment from the Chinese government to provide low-cost financing for new solar projects, the addition of solar downstream segments that are developing solar project pipelines and new feed-in tariffs.

The third Chinese solar player to benefit from the newfound interest in Chinese solar stocks is JinkoSolar Holding Co. Ltd. (NYSE: JKS), although it was not included in the Deutsche Bank upgrades. JinkoSolar issued 4.37 million new American Depositary Shares (ADS) at $16.25 earlier this month, and the stock still gained nearly 25% last week. We noted at the time that a short squeeze could be responsible and the institutional investors were going after some momentum plays.

The Chinese players finally have brought their manufacturing capabilities more into line with market demand and are following a course laid out by U.S. solar makers First Solar Inc. (NASDAQ: FSLR) and SunPower Corp. (NASDAQ: SPWR). That course led to the acquisition a few years ago of solar project developers to soak up the companies’ production and to take advantage of the higher value-added market for system design and installation.

First Solar and SunPower saw their shares improve last week too, but by more modest totals. First Solar stock rose about 5%, while SunPower’s stock was up about 11%.

Because the Chinese government at both the central and local levels have gotten behind solar energy with low-cost loans and feed-in tariffs, the outlook for these solar players has brightened considerably. Credit Suisse even raised its rating on JinkoSolar before the secondary offering was completed, and the stock trades today above the bank’s price target of $22.

Frothy? Maybe, but the impact of the government changes and the move to more emphasis on downstream projects could rescue the Chinese solar sector from the doom it faced just a year ago.

Shares are trading higher again Monday morning, with JinkoSolar up about 2.0% at $22.95, a new 52-week high. The 52-week low is $3.18.

Trina Solar stock trades up 3.6% at $15.36 in a previous 52-week range of $2.04 to $15.24. Yingli’s shares up about 0.2% at $6.88 after posting a new 52-week high of $6.97. The 52-week low is $1.25.