(Bloomberg News) Short sellers are flocking to solar power, dumping record levels of stock in First Solar Inc. of the U.S. and competing equipment makers in a bet that profit will be hurt by a glut of Chinese panels and shrinking demand in Europe.
First Solar of Tempe, Arizona, the world's largest maker of thin-film solar panels, had a record 23 percent of outstanding shares sold short this month, according to Data Explorers information on Bloomberg. A record 54 percent of Germany's Q- Cells SE is short, meaning the stock was borrowed for sale by speculators who hope to buy it back later more cheaply.
A surge in Chinese competition and solar subsidy cuts in the world's biggest markets of Germany and Italy have attracted short selling that has helped push down the 37-member Bloomberg Global Leaders Solar Index 22 percent this quarter. The index's price-earnings ratio has dropped to 15 from 19 since March 31.
"The stocks look cheap, but 2012 still has massive and potentially overwhelming challenges," said Shawn Kravetz, chief executive officer of Esplanade Capital. The Boston-based hedge fund has bought Chinese manufacturers and shorted their European competitors, he said, without naming stocks sold short.
Officials for First Solar declined to comment. Thalheim- based Q-Cells did not respond to e-mails or calls.
Kravetz said his colleagues who've invested in solar stocks for seven years call the industry a "solarcoaster" because of price volatility. The 37-member Bloomberg solar index has a 60-day volatility of 24 percent, or twice the 12 percent rating of the Standard & Poor's 500 Index, according to data on Bloomberg.
Not all out-of-favor stocks are heavily shorted. The solar index's biggest decliner this quarter, down 56 percent since March 31, is Evergreen Solar Inc. of Marlboro, Massachusetts, though just 15 percent of its shares were held short as of June 15, the most recent day Data Explorers data was provided.
Ten stocks on the index are shorted more heavily, including four Chinese manufacturers--Trina Solar Ltd., LDK Solar Co., Yingli Green Energy Holding Co. and Suntech Power Holdings Co.
Jim Chanos, the short seller known for predicting Enron Corp.'s collapse, last month recommended investors should bet against First Solar and said Vestas Wind Systems A/S, the largest wind-turbine manufacturer, is "best avoided."
As Italy and Germany slowed development of solar projects, China's JA Solar Holdings Co. and Suntech, the world's biggest solar-cell makers by capacity, were leading an industry-wide expansion of factory capacity that will add at least 9.5 gigawatts of new manufacturing lines this year. That will boost global capacity to 41.5 gigawatts, outstripping demand of no more than 28 gigawatts forecast by New Energy Finance.