HOT PLAY AS WINTER LOOMS

We had the first significant snow fall last night, so no doubt winter is on its way.

We touched a little on the coming holiday season in Monday’s Guide and this weather definitely made it seem a little more imminent. Today, we are going to shift gears and heat things up by highlighting the solar sector.

The space has been, pardon the pun, red hot in 2013. One of the major players, First Solar (NASDAQ – FSLR) is up 97% year to date. A plethora of Chinese based firms have listed in the U.S. as well as the Chinese government looks to curb pollution with the 12^th 5-year plan and a commitment of nearly $500 billion to green energy through 2015. Yesterday, the deal flow continued when NRG Energy, Inc. (NYSE – NRG) announced it was buying Edison Mission, the bankrupt divestiture of Edison International (NYSE – EIX) for $2.6 billion. NRG is clearly looking to expand its market base with the deal.

In looking back at our 2013 Market Monitor picks, we may have missed this hot sector, with one exception. A few weeks ago we highlighted Orion Energy Systems (AMEX – OESX) which has skyrocketed 48% since as of the close yesterday. While solar is part of the picture for OESX, it is not a pure solar play.

We looked far and wide through several screeners and price levels and think Canadian Solar (NASDAQ – CSIQ - $28.23) is far and away the best of the bunch for the foreseeable future, on a valuation basis. Although a little on the high side of our price range, the stock offers good value based on its revenue forecast. Plus, with a 40% rise in top line growth in 2014 the forward year P/E is an attractive 13. The bulls are also red hot for this one too when it comes to the Daily Moving Average from 5 to 50 days. The stock is on an exponential momentum run, more than doubling in price with nearly 3.5 million shares traded per day. Additionally, with the strategy of buying out of the money naked calls as a possibility given the price level, we looked at the put-call ratio. The signal is definitely bullish through the February 2014 contracts.

Canadian Solar just announced another deal for a 32 MW system in a deal with China yesterday. Solid 3Q financial results could light a fire here and CSIQ could pop to $32 or more by New Year’s Day. 

Have a great day!

Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.

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