PLAY: Buy the SPRWA January 17.50 Calls (O:SPWRA 11A17.50) at market, good for the week. Place a protective stop limit at $1.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).
Dear Bottarelli Research Member,
As I mentioned last week, today’s newest LEAPS alert is designed to buy into a bottom in the solar sector using an approach that I call “bottom-feeding” with shares of SunPower Corporation (SPWRA – NASDAQ). A full reiteration of this play will be featured below.
But first, I want to take a moment to point out the latest article from author Matt Taibbi, who I’ve repeatedly referred to as the best financial writer in the country.
Because he writes for Rolling Stone magazine, not many investors follow Taibbi. This is both a blessing and a curse. It’s a blessing because writing for an entertainment magazine like Rolling Stone allows Taibbi to operate free from any potential backlash he’d receive from exposing the inner-workings of our financial system. A beat writer for the Wall Street Journal, for example, would never get a single source to go on record after writing an editorial that calls officials at the Fed and the Treasury “low-rent assholes.” But luckily for Taibbi, he can get away with writing these sharp descriptions without the risk of being blackballed by the financial community.
The curse, of course, is that not many investors are aware that the best financial writer in the country is writing under the “National Affairs” masthead at Rolling Stone. Therefore, the shocking truth behind our current financial situation goes relatively unnoticed and misunderstood. But today, I’ll share with you details of Taibbi’s latest article titled, “Wall Street’s Bailout Hustle.” In this article, Taibbi concludes that Goldman Sachs (and other big banks) are not only conning taxpayers and the U.S. government out of trillions of dollars that were meant to “save” the economy, but they’re simultaneously recreating the conditions for another market crash. Says Taibbi, ”I have no idea what’s coming next. But I do wonder what happens when Wall Street’s latest sucker, the U.S. government, runs out of cash.”
Very rarely do I insert an external link into a Bottarelli Research alert. But since I feel so strongly that this article is required reading for every LEAPS member, I’ve decided to provide the full article link inline below. Since many of our strategic and tactical investment positions will be based on the results of situations exposed in this article, I highly recommend that you read it. Trust me, it’ll be well worth your time. “Eye opening” only begins to describe the new era of global finances. Welcome, my friends, to the “Bailout Era.” Enjoy!
“Wall Street’s Bailout Hustle”
Some of my favorite quotes from the article are listed below…
IT WAS BASICALLY A LICENSE TO PRINT MONEY – NO DIFFERENT THAN ATTACHING AN ATM MACHINE TO THE SIDE OF THE FEDERAL RESERVE
“The Fed became not just a source of emergency borrowing that enabled Goldman and Morgan Stanley to starve off disaster – it became a source of long-term guaranteed income. Borrowing at zero percent interest, banks like Goldman now had virtually infinite ways to make money. In one of the most common maneuvers, they simply took the money they borrowed from the government at zero percent and lent it back to the government by buying Treasury bills that paid interest of three of four percent. It was basically a license to print money – no different than attaching an ATM machine to the side of the Federal Reserve. Which goes a long way to explain Goldman’s enormous profits last year.”
ONE GIANT DOPE HOUSE
“Wall Street and the government became one giant dope house, where a few major players share valuable information between conflicted departments the way junkies share needles.”
THE PEOPLE RUNNING THE ECONOMY ARE RIP-OFF ARTISTS
“It isn’t so much that we have inadequate rules or incompetent regulators, although both things are certainty true. The real problem is that it doesn’t matter what regulations are in place if the people running the economy are rip-off artists. The system assumes a certain minimum level of ethical behavior and civic instinct over and above what is spelled out by the regulations. If those ethics are absent – well, this thing isn’t going to work, no matter what we do. Sure, mugging old ladies is against the law, but it’s also easy. To prevent it, we depend, for the most part, not on cops but on people making the conscious decision not to do it.”
These three quotes should give you a good sense of how Taibbi writes. I hope you read his entire article. But now, let’s move on to our play on SPWRA.
Spun off from Cypress Semiconductor on September 22nd, 2008, SunPower manufactures and sells solar cells, solar panels, and inverters – all of which convert sunlight to electricity. With residential and commercial customers in Germany, Italy, Portugal, South Korea, Spain, and the United States, SunPower is truly one of the top solar companies in the entire world.
SunPower also offers power system technologies, which includes development, engineering, construction management, monitoring, and maintenance services for their commercial, governmental, and utility clients.
Now, when it comes to the solar stocks, the latest news has absolutely hammer-jacked the entire sector. For example, First Solar (FSLR – NASDAQ) recently posted a 48% revenue jump to $641.3 million, which was higher than expected, but shares fell 6% as their outlook disappointed and profit margins narrowed.
This was certainly a negative for the solar group. But the real sector-wide weakness came when Germany planned to cut their solar subsidies. This is significant because Germany is the world’s largest market for renewable solar power. With fears that demand from the world’s largest market for renewable power could drop notably lower, analysts have hit solar stocks with a slew of downgrades (most recently from Barclays on February 22nd). This has put a storm cloud over the entire solar sector. But despite all this negativity, there have been some very recent signs that indicate that the sun is coming out once again.
You see, it now appears that the German subsidy cuts, which originally triggered the selling pressure, may not be as large as previously expected. German Chancellor Angela Merkel has now drafted plans to cut subsidies for solar parks by -15%, which is less than the -25% that was originally proposed in January. That’s why the intense selling pressure might be over-done. In fact, if you look at SPRWA’s valuation ratios, you’ll see that the weakness has now made the shares quite attractive.
SPWRA’s income statement shows revenues of $1.38 billion, which amounts to $15.64 in revenue per share. Considering the fact that SPWRA shares now trade for $18.64, that’s a great value. Not only that, but their balance sheet shows $472 million in cash, which gives them a book value per share of $13.97. Combine their revenue per share and their book value per share, and adding longer-dated calls at these depressed levels looks like a smart play. If we witness any sort of recovery between now and January of 2011, owning these calls will handsomely pay off. Get positioned now!
PLAY: Buy the SPRWA January 17.50 Calls (O:SPWRA 11A17.50) at market, good for the week. Place a protective stop limit at $1.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).
NOTE: On Wednesday, Canadian Solar (CSIQ – NASDAQ) posted a quarterly profit that missed market estimates. Net income for the fourth quarter was $14.9 million ($0.35 per share) versus a loss of $49.2 million ($1.38 per share) in the year-ago quarter. Analysts were looking for earnings of $0.45 per share, so despite a strong turnaround, CSIQ missed by $0.10. But despite these numbers, there was a large silver lining. You see, on a year-over-year basis, CSIQ’s revenue soared 317% to $287 million. This sets in motion the framework for a very nice recovery going forward. CSIQ’s Chief Executive Shawn Qu said, “demand is expected to be very strong for all of 2010. In the first quarter of 2010, we are expecting shipments growth over the fourth quarter of 2009 with further sequential shipments growth in the second quarter.” With a prediction of brisk demand in the current year, CSIQ’s news could signal a near-term bottom in the solar sector. Therefore, this supports our thesis of adding SPWRA calls.
UPDATES
DISCLAIMER: Due to travel plans of your editor, the following updates and stock charts are current as of Wednesday, March 3rd.
UUP June 23 Calls (O:UUP 10F23.00): While the U.S dollar is not the prettiest currency out there, it’s certainly “a lot less ugly” than the alternatives. Hold.
CCJ September 28 Calls (O:CCJ 10I28.00) & BG July 60 Calls (O:BG 10G60.00): Since last week, we’ve seen the beginning stages of a recovery in the commodity sector. I still feel like we pegged the bottom on BG and CCJ. Hold.
MTB April 70 Puts (O:MTB 10P70.00) & SRS July 9 Calls (O:SRS 10G9.00): What do you get for destroying the entire fabric of the global economic system? If you’re embattled Bank of American chief Ken Lewis, you get to retire with a pay package totaling $83 million. This absolutely sickens me to no end. As the number of banks on the “failure” list continued to rise, recent data showed that U.S. banks had their sharpest lending decline since 1942. I still think we’re setting up for another major financial shockwave to hit. Hold.
TIF May 40 Puts (O:TIF 10Q40.00): Did we just see the top? If so, then the pattern of a lower high indicates further weakness ahead. Hold.
EEV June 13 Calls (O:EEV 10F13.00): What will trigger the next financial panic? Nobody knows for sure. But what I do know is that the troubles are not behind us. When the next landmine goes off (which is only a matter of time), you’ll be glad that you own the EEV. Hold.
GDXJ August 21 Calls (O:GDXJ 10H21.00): Since 2000, gold prices have appreciated against virtually every currency in the world. For example, comparing gold prices to Swiss francs, euros, Canadian dollars, Australian dollars, Chinese yuan, Japanese yen, Hong Kong dollars, British pounds, and U.S. dollars shows that gold has gained between 10.1% and 15.1% against every one of these benchmark currencies. As governments across the globe continue to destroy their citizens’ purchasing power by spending beyond their means (and using debt to stay afloat), this spread between currencies and gold prices will only continue to move in gold’s direction. Hold.
TM July 75 Puts (TM 10S75.00): It might be time to reload our put position. Anyone investing in TM here, hoping it’s hit bottom, is in for a big-time disappointment. Hold.
AXP July 38 Puts (AXP 10S38.00): As expected, a failure at the 200-day moving average signals more weakness in AXP. Hold.
GME July 20 Puts (O:GME 10S20.00): The next stop for GME shares will be in the single-digits. Hold.
BBH July 105 Calls (O: BBH 10G105.00): The biotech sector is getting ready to try once again to break the $104.00 level. If this happens, then it’s onward and upward. Hold.
SQM April 40 Calls (O:SQM 10D40.00) & DBA January 2011 25 Calls (O:DBA 11A25.00): A nice rebound in the commodity sector signals more upside is ahead. Hold.
TBT June 49 Calls (O:TBT 10F49.00): A nice bounce of $47.00 indicates that our decision to hold was a smart move. Hold.
Sincerely,
