Avoid These 2 Solar Stocks Whether China Increases Subsidies Or Not

Chinese solar stocks Suntech Power (STP) and Trina Solar (TSL) have shown an upside of approximately 5% after the Chinese government started talks to provide more subsidies for solar companies. In our opinion, the Chinese government will probably approve the subsidies for the time being, but it doesn't have the capacity to inject such large amount for a long period. We will see in response that Europe and the United States will likely further increase the tariffs, as they did before, and make things worse for the Chinese solar companies. Moreover, these companies are encountering many problems and don't have any lucrative projects to restore their high growth levels of the past. Therefore, we recommend investors avoid taking any positions in Suntech Power and Trina Solar.

It looks as if STP and TSL are trading at pretty cheap valuations. Both of the companies are trading at low P/S, P/B, and EV/revenue multiples; however, we think that these valuations are a value trap. To bring growth to revitalize their positions is a matter of concern for these companies. Chinese solar stocks are burning cash at an alarming rate, debt levels are too high, and we don't see any plans from the companies to cope with the current situation. Therefore, it is not advisable for the investors to take any positions in the aforementioned stocks.

Read more