The Global Bull Bets on China and the Sun

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

Unlike some of its upstart rivals, TSL is no newcomer to the solar space. The company has been a pioneer in recycling scrap silicon discarded by both the solar and electronics industries going back to 1997. Today, TSL designs, develops, manufactures, and sells solar modules to distributors, wholesalers, and system integrators worldwide, including the United States and Europe.

As a growth stock in a growth industry, TSL has been growing by leaps and bounds. In the past three years, TSL’s sales have been up 320% in 2006, 164% in 2007 and 176% in 2008, with earnings expanding from 50 cents per share in 2006 to $1.49 in 2007 and $3.42 in 2008. After suffering a slowdown in early 2009, the company shipped approximately 123 MW of solar modules by Q3, an increase of 91.9% from the previous quarter and 84.7% year on year. It was no surprise then that TSL reported a very good Q3 with EPS of $1.29 and revenue of $249.7 million. And with next year’s bottom line expected to expand by more than 30%, TSL is trading at a forward P/E of less than 15 — a bargain for a fast-growth stock, in a fast-growth sector.

The Chinese government has also committed, on record, to reducing its carbon footprint by 40–45% by 2020. Whatever the country’s alternative energy cocktail will consist of, solar will be a major component. As part of its larger effort to install approximately 20 MW of solar power capacity in every province of the country under the Golden Sun program, the Chinese government recently approved a 2 MW project to be supplied by TSL. And this is just the beginning.

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So BUY Trina Solar Ltd. (TSL) at market today and place your initial stop at $37.50. If you want to play the options, I recommend the March $50 calls (TSLCJ). Here’s a word of warning. The small float of outstanding shares will likely make TSL your most volatile position in the portfolio.

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) fell back this week, as the big four BRIC markets — Brazil, Russia, China, and India — consolidated. Having spoken last week with Jim O’Neill, the Goldman Sachs economist who coined the term BRICs, it’s hard not to be bullish. BKF remains a BUY.

Market Vectors Brazil Small-Cap ETF (BRF) pulled back slightly this week. The Inter-American Development Bank approved a $3-billion conditional credit line with Brazilian small and mid-sized businesses on Thursday. Around 75% of the new jobs created in Brazil this year were created by small and mid-sized businesses. Your bet on Brazilian small caps remains a BUY.

The iShares MSCI Chile Investable Market Index (ECH) jumped 3.9%, and hit yet another high of $54.25 on Friday as a self-made billionaire businessman won the first round in Chile’s presidential race — bolstering his bid to unseat the left-of-center coalition that guided the country’s transition from dictatorship to democracy and has governed for 20 years. ECH remains a BUY.

The iShares MSCI Israel Cap Invest Mkt Index (EIS) jumped 1.12% on the week as it hit a high for the year of $54.18 last Thursday. With the global technology sector heating up, Israel is a solid bet and remains a BUY.

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The iShares MSCI Hong Kong Index (EWH) closed slightly down this past week. But with the Hang Seng Index back up over 22,000 in overnight trading, Hong Kong remains a BUY.

SPDR S&P Emerging Markets Small Cap ETF (EWX) was flat this week. I expect this position to close at a record high before the year is out. EWX remains a BUY.

ICICI Bank Ltd. (IBN) pulled back this week. ICICI Bank is slated to become the second Indian financial institution to be given a banking license as a qualified full bank (QFB) in Singapore that will allow it to open 25 branches, install ATMs, receive deposits and disburse loans as a local bank. IBN remains a BUY.

Mechel (MTL) has me scratching my head. The stock pulled back last week despite its earnings blowing away analysts’ expectations. Thanks to stronger demand for its main products and increased output from earlier in the year, MTL’s third-quarter net profit reached $132 million, more than doubling the $61 million forecast in a Reuters poll of analysts. With the stock as technically oversold as it has been since the July pullback, MTL remains a BUY. But watch your stop at $16.00.

Vimpel-Communications (VIP) fell back this week. Vimpelcom’s shareholder meeting decides how much dividend to pay out this week, with the recommended dividend expected to be around 32 cents a share. Since I am counting on a bounce in the markets, VIP remains a BUY.

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy.

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Last night, I had s chance to chat with Jim O'Neill, Goldman Sachs’ head of global economic research, after a presentation he gave here in London.

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