A Contrarian Bet on Solar

Nicholas Vardy

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

Most U.S. markets closed near record highs on Friday, with the Dow Jones up 1.09%, the S&P 500 rising 2.02% and the NASDAQ jumping 3.15%. The MCSI Emerging Markets Index continued its recent rise by gaining 2.13%.

Big gainers in your Bull Market Alert portfolio included Euronet Worldwide (EEFT), which soared 14.42%; The Bank of Ireland (IRE), which recovered 8.35%; Palo Alto Networks, Inc. (PANW), which added 7.68%; and the Rubicon Project, Inc. (RUBI), which rose 6.99%.

Both Palo Alto Networks, Inc. (PANW) and the WisdomTree Europe Hedged Equity Fund (HEDJ) hit new 52-week highs.

Several of your positions moved back above their 50-day moving averages and changed to a BUY. These include the WisdomTree Japan Hedged Equity ETF (DXJ), Euronet Worldwide (EEFT), the Rubicon Project, Inc. (RUBI) and MasterCard (MA).

Sadly, the big jump in EEFT won’t be enough to put your EEFT February $55 call options (EEFT150220C00055000) related to that stock back in the money. Sell these options today to minimize your losses before they expire worthless on Friday.

Also this week, I am recommending that you buy back your shares in DBC PowerShares DB Commodity Tracking ETF (DBC) to lock in a solid 18.81% gain. With oil prices stabilizing and prospects for growth out of Europe improving, this is a good time to take your profits on this one.

This week’s Bull Market Alert recommendation, JA Solar Holdings Co. Ltd. (JASO), focuses on the formerly red-hot solar sector, which has been out of favor for a while. Although based in Shanghai, JA Solar Holdings Co. Ltd. is not your typical China solar play, as it has only 35% of its revenue coming from China.

Here’s why I expect JA Solar Holdings Co. Ltd. (JASO) to rise strongly in the months ahead.

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First, despite solar stocks themselves falling out of favor, solar remains a rapidly growing industry. In the United States alone, solar capacity has expanded 5x just since 2011. JASO itself is a global business, having long-term strategic partnerships with companies like SunEdison, British Solar and China Huaneng Group.

Second, JASO itself is growing by leaps and bounds. Sales in the most recent quarter increased 71.8% in dollar terms, up from 52.9% and 35.7% growth in the two prior quarters, respectively. The company also has been growing its margins, increasing its profitability even more.

Still, the company is surprisingly cheap. JASO trades at a forward price-earnings (P/E) ratio of only 5.77x earnings versus an average of 20.7x for its peers. And it trades at just 0.54x book value, a 50% discount compared to its peers at 1.0x.

Third, the solar sector is dogged by poor sentiment — terrific news from a contrarian standpoint. Investor’s Business Daily ranks the group a lowly 191 out of 197 groups it tracks.

JASO is set to report its fourth-quarter 2014 results in mid-March. The omens are good. JASO has delivered an average positive earnings surprise of 237.25% in the last four quarters, beating estimates in three of the last four quarters. And the average analyst has a $14 price tag on JASO. That’s a whopping 57% above its current price.

So buy JA Solar Holdings Co. Ltd. (JASO) at market today and place your stop at $7.25. If you want to play the options, I recommend the June $9.00 calls (JASO150619C00009000), which last traded at $1.10 and expire on June 19.

Portfolio Update

The Bank of Ireland (IRE) gained 8.35% last week. IRE continued its strong recovery rally for a second week last week, regaining all of its recent lost ground due to its NYSE American Depository Receipt (ADR) de-listing news. IRE is back above the $14.00 line, a significant support price. Fitch Ratings also gave IRE a boost last week on news it affirmed Ireland’s Long-term Issuer Default Rating (IDR) at “A-” and set an outlook of “Stable.” IRE now sits just two cents below its 50-day moving average (MA) and is a HOLD.

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WisdomTree Japan Hedged Equity ETF (DXJ) added 2.38%. Although Japan’s gross domestic product (GDP) figure came in at 2.2% on Monday, it missed expectations. However, this figure was good enough to label Japan as officially out of a recession. The Japanese Nikkei index broke the 18,000 level yesterday and hit a fresh eight-year high to celebrate the continuing Japanese recovery. DXJ also broke above the 50-day MA last week to become a BUY.

Euronet Worldwide (EEFT) jumped 14.42% last week after reporting favorable earnings on Wednesday. EEFT reported $0.74 earnings per share (EPS) vs. a consensus estimate of $0.69. Revenue came in at $462.00 million vs. a $444.50 million average analysts’ estimate, up 23.1% year over year. EEFT also leapt above its 50-day MA to become a BUY.

Palo Alto Networks, Inc. (PANW) gained 7.68%. Your bet on a new generation of strong cybersecurity performed strongly last week as it hit a new 52-week high. PANW will report earnings on March 2, after markets close. PANW is a BUY.

The Rubicon Project, Inc. (RUBI) also pushed higher on strength, rising 6.99%. RUBI released figures for its first Consumer Pulse survey last week, giving an inside look at consumers’ Valentine’s Day buying habits. Apparently 89% of those surveyed planned to buy gifts in the final days just before the big day, giving advertisers insight on when to advertise to capture their slice of this $18 billion holiday. RUBI will release earnings on Feb. 24 after markets close. RUBI rose above the 50-day MA and is a BUY.

HDFC Bank Ltd. (HDB) rose 2.64%. HDB reported a 20% jump in net profits during the weekend for its recent quarter ending December 2014. The bank cited strong growth in interest income and a drop in the quantity of bad loans on its books. HDB is a BUY.

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WisdomTree Europe Hedged Equity Fund (HEDJ) gained 1.94% for its opening week in the Bull Market Alert lineup and hit a new 52-week high. HEDJ has been the beneficiary of strong inflows so far this year totaling nearly $3.7 billion. This trend should continue, given Europe’s recent moves towards quantitative easing and the continuing strength of the dollar. HEDJ is a BUY.

Latest Special Report

As a courtesy, I want to bring to your attention the newest version of The Top 12 Stocks for 2015, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. This report and others are available FREE on my website to you.

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Nicholas Vardy

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