Notes on the markets, crashes, First Solar and other positions

Are the bulls finally growing complacent this 10% rally in the broader markets in October and those panicky August lows are now far in the rearview mirror? Should we paste a reminder on our screens that “Crashes in the rearview mirror are closer than they appear.” Let’s not be greedy after having successfully buying stocks when others were panicking. Steady as she goes for now and if you haven’t trimmed since those August lows, you might want to just do a little nip and tuck here and there for now.

I’ve got some more trades I’m looking to make so stay tuned for that. But I’m not forcing anything right now and also want to remind you that patience is often the best trade. In the meantime, here are few notes for you.

First Solar reports blow out earnings and guides much higher and the stock is up 10% to new six month highs. Third-quarter sales reached $1.27 billion and net income was $346.2 million, or $3.38 per share. Analysts were only expecting $1.11 billion in revenue and $1.55 per share in earnings.  To top it off, management said that full-year gross margin will be 24% to 25% and earnings will be $4.30 to $4.50 per share, both big increases from previous guidance. Earlier this week, in regards to First Solar, I’d noted that the company “could earn $4 per share next year.” Or more. Meanwhile other solar stocks are down up to 25% today. Goes to show you why we do our homework and try to find great stocks rather than just buying sector ETFs or loading up on a whole bunch of sector names. I’m sticking with my First Solar for now and think it can run to $15 per share net cash and I think the stock could run to $80 or more which would give it a P/E of 17 and an enterprise value to earnings ratio of 14.

Simo’s popped 6% today to new highs since we started buying it this summer. I’m still holding mine steady there too.

Pandora’s hitting new lows in the mid $11s and looks like it’s well on its way to my single digit price target, but I wouldn’t want to lean on it more here. I covered about half of my own $P short last Friday around $13 for some very nice profits. I’m still holding some of it steady though because I do think it can fall farther over time. If it were to run above $15 at some point, I’d probably re-short the shares I covered near $13 last week.

Update on GDX – Gold miner stocks are almost all loaded down with debt and are going to need sustainably higher gold prices, say $1250 or above, to start generating enough real cash to cover their dividend and be able to avoid any financial problems ahead. If gold stays at least above $1100 the company will likely survive the next couple years despite all that debt. I wish I could find a gold miner stock with little debt to provide a cushion over the next year or two and that would probably be the one I’d be most likely to consider actually risking some capital on. For example,I just looked at Gold Corp’s balance sheet and it’s about as wrecked as most of the other gold miners. $400MM cash but $3.5BB(!) in debt. GG is basically a call option on gold in the next year. If gold gets to $1500, GG would probably be at $25 or $30 based on the increased earnings potential bringing increased financial flexibility. At $1300, $GG could be in the high teens. GDX is similarly priced and set up like GG. Still holding my small remaining $GDX call options steady for now after having locked in nice profits on most of them soon after they popped for us.

Side note:Potential Walgreens-Rite Aid Deal Faces Substantial Antitrust risk– There goes the retail pharmacy market into becoming a full-blown oligopoly/cartel. Why do we have anti-trust laws if we don’t enforce them. “Support your local business” was the phrase I used to always use to end my TV show every day, and I use a local pharmacist, Sierra Blanca Pharmacy. Consumers will get screwed by a monopoly in beers and by rolled up oligipolies in retail pharmacy, banking, airlines, car rental companies, semiconductors, media companies, etc etc. It’s great for stock prices and corporate earnings, but bad for the average Joe, Main Street and the poor.

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