The Dow Jones Industrial Average started off the week dipping 21 points below Friday’s close on a day that proved to be the lowest volume day of the year so far, with traders likely looking for some sense to see how the financial situation plays out overseas and whether Congress here at home comes to grips with across-the-board sequestration cuts before next month’s deadline.
| Company | % Gain |
|---|---|
| SunPower Corporation (NASDAQ:SPWR) | 19% |
| Diamond Foods (NASDAQ:DMND) | 15.2% |
| SolarCity (NASDAQ:SCTY) | 10.2% |
Now resist the urge to high-five everyone in the cubicles next to you. Smart investors won’t celebrate until they know why their stock surged, because without a fundamental basis for the bounce, these stocks could just as quickly make the return trip down.
New lease on life
It was just last week that the second largest U.S. solar manufacturer, SunPower, was reeling from a disappointing fourth-quarter earnings report that saw losses gap 56% wider to almost $145 million as prices for its panels fell. But it was pricing news yesterday that caused its stock to shoot higher yesterday.
A trio of reports came out showing sunnier skies for the solar industry. Credit Suisse Group AG (ADR) (NYSE:CS) said polysilicon prices are at a trough and production cutbacks by manufacturers such as Dow Corning (NYSE:GLW) will allow them to soon rise again. The joint venture between The Dow Chemical Company (NYSE:DOW) and Corning Incorporated (NYSE:GLW) is a major producer of polysi, and it’s undergoing a reorganization of its business as a result of a steep slide in revenues. It cut back production last quarter and is expected to report further cutbacks this time around.
Additionally, GTM Research predicted U.S. residential solar financing will grow nearly fivefold by 2016, while the Financial Times said bonds back by cash flows generated from leasing solar panels could be in the industry’s future. While that sounds like a dicey development to me, both SolarCity and SunPower are among the biggest third-party ownership vendors, and they would stand to benefit from the arrangement. Indeed, GTM says SolarCity is the largest residential installer in the U.S. and at 18.8% has more than double the market share of its closest competitors.
Cutbacks in incentives and subsidies to the industry have allowed equipment leasing to gain new prominence, and analysts expect these opportunities to expand. While these are trends that favor the solar shops, I see nothing concrete here that can really justify the big jump their stocks enjoyed, and I expect they’ll give back some of these gains soon enough.
Diamond in the rough
It’s tempting to think investment house BlackRock was nuts for taking a nearly 8% stake in Diamond Foods, as the nut grower is still trying to right itself following the accounting scandal that led to the ouster of its CEO and CFO and ultimately wiped out $56 million in profits from its books. But having cleaned house and restated its financials, it’s reasonable to expect the Diamond will be able to get back on track. Certainly the world’s biggest money manager does.
Still, it’s worthwhile to reflect on what might have been. Before the accounting brouhaha erupted, Diamond was poised to snag the Pringles potato chip brand from The Procter & Gamble Company (NYSE:PG) that would have made it the second largest snack company behind PepsiCo, Inc. (NYSE:PEP)‘s Frito-Lay brand. Instead, the deal fell through and cereal maker Kellogg Company (NYSE:K) picked up the chips.
Kellogg recently reported its fourth-quarter results, and while on a GAAP basis it recorded a loss because of a pension-related charge, net sales surged 18% in the period, with Pringles being the driving force behind most of the gains. Without the acquisition, sales growth still would have come in at 5.3%, its biggest gain in more than a year, but it shows what Diamond could have enjoyed had it won the brand.
BlackRock may still realize very good returns from its investment in the nut grower, but investors who have lost 80% of their investment because of its shenanigans will find that a hard nut to crack.
The article Whoa! These 3 Stocks Far Outpaced the Dow originally appeared on Fool.com and is written by Rich Duprey.
Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Corning and Procter & Gamble and owns shares of Corning.
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