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The Trade Coach 

2007 was a good year for solar power.  With rising oil prices, the solar business has picked up considerably.  It would appear that the prospect of $100/barrel oil has sent this sector into what is often called the hockey stick growth stage.  That being the stage where a new company, technology or product begins to attract mass market interest as a result of any number of market dynamics.  In this case, the rising price of oil and the now generally accepted impact of global warming.

There were some outstanding performers in 2007.  So let’s review and evaluate where the opportunities may emerge in 2008.  Already many analysts and pundits are referring to the solar business as a commodity business, with a few big players dominating the major market for new solar power business.

All these major players… STP (The leader), SPWR and FSLR had great years with FSLR leading the pack with an almost 1000% gain over the last year.  STP and SPWR had ~300-400% gains respectively.  The result of this incredible stock price growth is that now FSLR is sitting atop the market cap heap at an astounding market cap of >$19 Billion, or close to a 60% premium over STP’s cap of $12.5 Billion.  Though FSLR seems to be running on all cylinders right now, their revenue was just 25% of STP’s in fiscal 06, and ~40% of STP’s in the SEP 07 quarter.

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From the Coach’s perspective it’s a little early to be annointing FSLR as the champ of the solar sector against the clear market leader, STP, a chinese company with a global presence and a huge advantage in the world’s largest solar markets, China and Europe.  We don’t yet see that the U.S. market, corporate or consumer, is ready just yet to give up their oil habits.

The Coach has concluded that this situation will probably correct itself during 2008 and we are looking at FSLR as one of our top Short candidates for this year.  We believe this market has gotten just a bit ahead of itself, with FSLR leading the way as the “irrational exuberance” champ of 2007.

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We had positions in both STP and SPWR in 2007.  SPWR from APR - JUL, and STP from its JUL breakout until the stock moved below our sell stop in early AUG.  The combination of the two positions resulted in a small profit over the 4 month period.  Of course then we missed out on the big run both stocks made from there into DEC.  Oh well, but at the time it looked like both stocks had run out of gas.

So with those big run-ups in the big players in 2007 where may we find the opportunities this year?

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When a war is being waged for market share in a commodity market, it is often best just to stay out of the way until a clear winner emerges.  But there are always other winners in a war like this one, and that’s why The Coach is watching the silicone and wafer suppliers that serve these big solar manufacturers.  Both of the following companies should do well in the face of this intense competition as the solar market continues it’s ramping growth…

WFR & LDK – Both provide the silicone and silicone wafers necessary for the production of solar panels and modules.

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The Coach is also watching the disruptive technology companies that were largely left out of the big run-ups seen by the big players.  These companies are all producing the newer and more efficient types of solar cell technologies (i.e. thin-layer, string-ribbon, etc) which are reportedly much more efficient than the current technologies being manufactured by the market leaders.  However, their biggest advantage from our perspective is that they all are much more reasonably priced, which makes them more attractive as a potential trade as well as potential takeover targets of the bigger players.

ESLR

ENER

SOLF

All are producing innovative and potentially disruptive solar technologies, and ENER has the added advantage that they are developing other types of disruptive energy technologies that could become mass market winners as well.

Both ESLR and SOLF are currently showing good strength in this weak market and we will be watching closely for strong breakouts from either of these recently strong performers.

Coach BD