Doing some catch up on this stock. I dropped Suntech Power Holdings (STP) from the Jubak Picks 50 long-term portfolio https://jubakpicks.com/jubak-picks-50/ on January 18, but this first opportunity I’ve had the time to explain why in detail or to actually remove it from the portfolio. I’m working on explaining the other sells and buys from that group over the next week or so. (See the January 18 post at http://jubakam.com/2011/01/10-stocks-for-10-years-my-annual-update-to-the-long-term-jubak-picks-50-portfolio/ )
What worries me about Suntech Power Holdings (STP) in the long-term?
A new generation of investment in solar manufacturing that is likely to put Suntech even further behind on cost just when the company thinks it has caught up to competitors
At the moment Suntech has a cost problem. In the September 2010 quarter Suntech’s cost-per-watt was $1.48, according to Morningstar. That compared to $1.11 at Yingli Green Energy Holding (YGE) and $1.20 at Trina Solar (TSL).
The company decided that the way to address this cost disadvantage—created it believed because unlike those competitors it didn’t produce silicon wafers but acquired them from outside producers—by buying the wafer production operations of Glory Silicon in 2010.
That deal, though, hasn’t really fixed the cost problem—because the cost hurdle is about to get much higher. Yes, producing wafers in house will shave about 20 cents per watt off Suntech’s cost of production. All things being equal that will bring Suntech’s cost down to $1.28—that’s within striking distance of the $1.11 at Yingli and the $1.20 at Trina. Closer but still trailing.
And recent months have brought a wave of new investment by technology manufacturing powerhouses that promises to make competing on cost even tougher. For example, Taiwan Semiconductor Manufacturing (TSM), the contract silicon fab that is so good on quality and cost that Intel (INTC) has farmed out some production to it, is building its first solar cell factory in Taiwan. The company bought a 20% stake in Motech Industries, Taiwan’s biggest solar cell maker in 2009. In Malaysia AU Optronics (AUO), Taiwan’s biggest maker of flat panels, is building a $1.3 billion solar factory in a joint venture with U.S. solar manufacturer SunPower (SPWRA). Production is scheduled to start up in the fourth quarter of 2011. Samsung plans to invest $6 billion over the next decade in the solar sector.
What all these new entrants bring to the game is experience with cutting-edge, large-scale production. These are manufacturing companies that have survived generations of brutal silicon price wars in chips and screens. Their success is built on wringing out costs at every stage of production. I’m not saying that none of the current generation of solar companies will survive the competition. But I am saying that if you can’t beat the current pack, these new competitors are going to be just too tough.
And that’s why I dropped Suntech Power from my long-term Jubak Picks 50 portfolio on January 18.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Taiwan Semiconductor Manufacturing and Yingli Green Energy as of the end of December. (I will have the January portfolio holdings posted this week.) For a full list of the stocks in the fund as of the end of December see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
It seems The Jubak Picks 50 Portfolio is down to 48 with the recent sale of STP and ERJ.
What was bought instead? I am trying to track his portfolio with mine.
as i recall back when jj made this recommendation it was partly on the basis that STP was way more than a solar company – that it was a chinese powerhouse that was basically too big to fail. anybody else remember anything like that? either way, since jj sold it, it went up more than 15% for no apparent reason. makes the whole question of timing to sell it even more difficult to fathom…
The recent price action in STP has truely convinced me that my decision to get out was correct. Since I sold, the stock is up about ten percent on no news that i can tell.
Of course i would have liked the additional ten percent — LOL.
sjmaerz. I wasn’t trying to be condensending but in my book it is far better to take a loss and move on rather than wait for a turnaround. Two thousand dollars is two thousand dollars that could be invented somewhere else. Whether keeping it with STP or somewhere else is the right move, I sure as heck don’t know. With all the price volatility with STP, who knows. It might rebound.
There iare two reasons to sell a loser outside of investment returns. One is taxes. If you sell in a taxable account, you can claim the loss against profits or income. Only works in a taxabe account though. For this reason I don’t hold risky stocks in my Roth — Learned it the hard way when a junk bond went to zero.
The second it psychological. It hurts to admit a mistake but it is even worse to have a looser stare you in the face every time you look at your portfolio. For me, it’s better to sell and get over my mistake than to hope for a miracle.
I try to avoid long term losers. If a stock is down significantly with no catalyst for a rebound, I generally sell and save some money on my taxes. I can always buy it back a month later.
Good luck with your investments.
Thanks, scottsws, for the investing 101 lesson. I understand that, under normal circumstances, the only thing that matters is whether a stock is going up or down. However, at least for me, losing 75% of my investment is not normal. The point is that the value of my investment is small enough now that I don’t have any motivation to sell, and I don’t care if I lose the last $2,000. Oh, and I still own Sonic Foundry after about fifteen years of pain, for the same reason. This isn’t about “admitting my mistake” or your assumption that I am a man. I know I made a mistake in not selling a long time ago, but selling now doesn’t correct my previous mistake. And I don’t measure my manhood by my stock picking ability. I will hold my two duds until they are worthless or until they are worth selling to invest elsewhere.
Ticktock,
Considering YGE just reported an upside earning surprise this morning and their PE is sill well below the Market and the Industry, I am holding on until I feel the company, market or environment moves against the position.
Note that I have ‘traded’ YGE a few times due to it’s gyrations, never holding these positions more than a few days. I always was convicted that the general direction was up, so on big down swings I was picking up shares to clip the 3 or 5 % the market was giving. These were in addition to my base position.
820:
Read my post carefully before singled it out.
(1) I was not saying solar stocks are all losers. (It’s possible for someone to make money on solar stocks depending on when you got in and out.) I was simply saying not interested in the solar business, because it’s price tag made it unpractical for many people. I have no desire to put it on my roof, because the price is forbiddenly expensive. I know a company wanted to put solar penal on its building recently, but was shocked by the price tag. I am glad that you like such companies, but not for me, at least not for a while.
(2) Despite having said that, I was not pro-oil or anti-solar. I was simply not interested in someone who relies on hand out. Since you started it, I’d be glad to finish it. Oil companies can survive and make a lot of money without subsidies (of course free money always is welcome), I don’t know how many solar companies can.
BTW, when someone wants to hand out money, people line up. Even company as big as GE would line up for it.
Oil companies are not evil. Their products are completely legal. I can not imagine how the world would be without oil and use of oil in the past 100 years in the western world.
yx-
aren’t oil company’s that are making billions still recieving subsidies in one way or another?
fyi- i have made my money back in spwra after doubling down, twice. now i am riding the profits for a little while.
I have never warned up to any solar stocks. Not because I don’t like solar power, but because of practical reason. When can they make money without subsidies? When can their products be affordable and practical for consumer? The only sort of solar stock that I ever bought is WFR which I just sold few days ago at very good gain for only few months.
Like phigbee, I sold my shares when they crossed 9.50. Made some money but decided beforehand that STP was just too volitile for my tastes.
sjmaerz. The money is gone. The market doesn’t care what you paid for the stock. Theonly thing that matters now is whether YOU feel that STP is a better investment than something else. There are millions of stock investors who were in the same boat as you after the dot-com crash ten years ago. Some of them are still sitting around waiting for a looser to “break even.”
If you sincerely think STP is a better investment at this point than something else, then keep holing. Otherwise be a man and admit your mistake. Sell and move on. We all make mistakes.
After a 75% loss, there is no point in selling.
Jim,
I sold the rest of my STP holdings today (loss): thankful that it moved above my target price of $9.50 when you made your critique. How about an update on AMSC now?
What about YGE? It has had a nice run. Time to move on? Thanks.