NEW BULLISH Plays
Daqo New Energy Corp. - DQ - close: 31.09 change: +0.49
Stop Loss: 28.75
Target(s): To Be Determined
Current Option Gain/Loss: Unopened
Entry on April -- at $---.--
Listed on April 18, 2015
Time Frame: 8 to 12 weeks
Average Daily Volume = 127 thousand
New Positions: Yes, see below
Why We Like It:
Solar energy stocks can be volatile. The market is constantly reacting to the swirling waters of politics, international trade, tariffs, and subsidies. Currently it looks like solar stocks are on the rebound after a rough second half in 2014.
DQ is in the technology sector. According to the company, "Daqo New Energy Corp. (DQ) is a leading polysilicon manufacturer based in China. Daqo New Energy primarily manufactures and sells high-quality polysilicon to photovoltaic product manufacturers. It also manufactures and sells photovoltaic wafers."
They provide more detail on their website. DQ says, "We utilize the chemical vapor deposition process, or the 'modified Siemens process,' to produce polysilicon, and have fully implemented the closed loop system to produce high-quality polysilicon cost-effectively. We manufacture and sell high-quality polysilicon to photovoltaic product manufacturers, who further process our polysilicon into ingots, wafers, cells and modules for solar power solutions. Currently our annual capacity for polysilicon is 6,150 MT. We plan to further increase the capacity to 12,150 MT."
Plus, "We also plan to upgrade our off-gas treatment process from traditional Hydrogenation technology to Hydrochlorination technology. Based on our ultra pure polysilicon, we have expanded into downstream wafer business. Our current wafer manufacturing annual capacity is 72 million pieces. Most of our wafer product is high efficiency wafer which represents approximately 4.3 watts per piece."
The company's most recent earnings report was April 10th. DQ reported their 2014 Q4 and full year results. Last quarter the company earned a profit of $3.6 million but that's down from $5.9 million a year ago. Revenues were better than expected at $49.5 million versus the $46.1 million estimate. Gross margins improved from 31.7% to 32.1%.
Their full year 2014 results saw revenues improve +67.5%. Polysilicon shipments were up +40.6% versus 2013. Gross profit hit $43.3 million compared to a loss of $26.1 million in 2013.
A few of the details in their Q4 2014 results did spark some concern. DQ saw an increase in selling, general, and administrative expenses. The cost to produce their polysilicon rose +1.4%. The average selling price for polysilicon fell from $21.50/kg from Q3 to $20.47 in Q4. At the same time DQ's shipments were down -3.8%. To boil it down, analysts are concerned about oversupply and overcapacity issues.
At the moment investors appear to be ignoring those concerns thanks to DQ's optimistic outlook.
In their latest earnings report the company provided an optimistic industry forecast. DQ management said, "Global solar PV installations in 2014 totaled approximately 45.0 GW, which represents a 23.2% increase compared to 36.5 GW in 2013. Currently most analyst reports forecast that global solar PV installations in 2015 will be in the range of 52~55 GW, which represents a growth of 16%~22% compared to 2014. In 2014, annual solar PV installations in China were reported to amount to 10.6 GW. In March 2015, Chinese National Energy Administration released the 2015 target for solar PV installations of 17.8GW, which is 19% higher than the initial target of 15GW, and represents an increase of almost 70% from 10.6 GW in 2014. Although some additional polysilicon supply may enter the market mainly in the second half of 2015, we believe the supply and demand of polysilicon will remain in balance, on the premise that the global markets, including the China market, will grow as expected."
This positive outlook has helped push shares of DQ to new four-month highs and above significant resistance at $30.00 and its simple 200-dma. The point & figure chart has turned positive and currently forecasting a long-term target at $48.00.
I want to remind readers that solar stocks can be volatile and DQ especially since it has a very, very small float of only 5.37 million shares.
Therefore I'm suggesting very small bullish positions if DQ can trade at $31.55. We'll try and limit our risk with an initial stop loss at $28.75.
Trigger @ $31.55 *small positions to limit risk*
- Suggested Positions -
Buy DQ stock @ $31.55