Scaling Back on Suntech Power (STP)

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November 8, 2007 | SIN Picks | | Author Asif

I am scaling back on our portfolio pick Suntech Power (STP) by selling a little over a third of our position or 150 shares. As mentioned in the November investment newsletter I was planning on scaling back on our position or adding protective put options on Suntech to the portfolio. Due to high volatility, the puts are very expensive and hence I have decided to scale back on our position and book a profit of roughly 175% on our purchase last August. Even with the recent run-up, which has seen the price of Suntech more than double year-to-date, Suntech’s performance does not match the more than 250% gains that Chinese competitor Trina Solar (TSL) has racked up or the more 300% gains in California based SunPower Corporation (SPWR) year-to-date.

With a price/sales ratio of 10.59, a forward P/E of 43.19 and demand slowdown in Germany, which represents more than half of Suntech’s revenue, it may be prudent to take some profits off the table. Beyond scaling back on your position or buying protective puts, a third option for those who have a very strong stomach and are convinced that this rally in solar stocks cannot continue would be to actually short stocks of Chinese solar companies like Trina Solar (TSL). While our recent short position in luxury RV manufacturer Monaco Coach (MNC) has done well, this is a highly risky strategy to apply to a high growth sector like alternative energy. Check out this excellent article for a well reasoned bear case on Suntech Power by One Family’s Blog.

The actual sale price will be based on the closing price of the day and the SINLetter model portfolio will be updated accordingly.

Full Disclosure: Suntech is currently the largest position in my personal portfolio and I will sell part of this position today after this blog entry is sent out to subscribers.

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