Jerome, I think your are right about the solar area. I tend to watch that sector more than some others. They have been hurt by lack of financing for some time, but now they are getting a lot of renewed attention.
I bought into WFR several years ago while they were still on the downtrend and that ended badly for me. I was way to early. Now it is a "hot" stock. I don't think the sector is all that great yet, but it is important what the market thinks, not what I think.
I think the solar sector is not all that self sufficient yet, but this is a great example of what the Fed can do when it pumps 85B a month into the market and says it will continue this funding way on into the future. All this liquidity spills over into all parts of the market, and various sectors "take off" since "funding" becomes available to invest. Uncle Ben must be grinning every morning when he wakes up to see how much influence he has over the market. There will come a time when what he does, does not matter any more, and by that time we will have a nice, big, asset bubble in place, just like the technology bubble of 2000 and the market will start coming down the "backside" of the bubble, and it won't be pretty.
The market is "rotating" into many sectors and companies that are less than financially sound. Let's take a look at IDCC, one of the SOXM stocks. The stock gone from $40 a share in mid April to $48 now, a 20 percent gain, yet the consensus earnings estimate for this year is -0.55 cents and -0.22 cents for next year. In mid April, earnings estimates were -0.71 cents for the current year and +0.15 cents for the following year. This is a stock with FY ending in Dec so its not expected to make any money in 2013 and not expected to make any money in 2014, but is up 20% in the last month selling at $48 a share. Does that make any sense? I think not.
Then we have CRUS, with a FY ending in Mar, expected to earn 3.02 per share this coming year, and 2.50 the following year. It is selling around 22 a share with a PE of 7 for this year and a PE of 9 for the following year. Does this make sense? I think not. This is all supposedly because 90 percent of CRUS's revenue is from being a supplier to AAPL. Since the market presently thinks AAPL is going down the tubes, CRUS must be as well, but at the moment the analysts do not think so. But that doesn't matter, CRUS "must" go down like AAPL. Gottfried's chart of AAPL and CRUS just posted shows the correlation.
I agree with your idea of following the headlines. Your example of the solar sector is "right on" I think.
Don |
