LDK solar (NYSE:LDK), the Chinese manufacturer of multicrystalline solar wafers, is up nearly 200% from its March lows but there's still a lot of downside pressure on this stock.
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The price of its wafers is still decreasing, with the company estimating that wafer prices will be between $1.1 and 1.3/W in the second quarter, down from the $1.54/W the company averaged in Q1 and significantly down from the $2.18/W in Q4 of 2008.
In addition, the situation on their balance sheet from the first quarter looks stressed. Total current liabilities stood at nearly 2 billion - of which half was short-term bank borrowings and current installments on long-term borrowings.
On the asset side, they recorded 1.3 billion in current assets (of which $550 million is tied up in inventory), giving LDK a current ratio of 0.65 and a quick ratio of about 0.25. That should be very concerning for shareholders and could be a significant hurdle to future growth.
Expect the company to try raising funds through equity issues or some form of debt issue in the near future. In the best case scenario, you may see the government providing assistance or some form of subsidy to buoy this ailing market. (Before you buy into the solar hype, learn how the industry works in our article Spotlight On The Solar Industry.)
Although solar has the potential to one day provide emission free energy on a large scale, that time is not now. A more realistic energy option to be invested in for the next 5-20 years is nuclear energy - an energy source that can produce emission-free energy on a large enough scale for developing countries.
At a recent forum for climate change in Manila, the chief advisor of the Bangkok-based Energy for Environment Foundation said "Developing Asian countries - whether they like it or not - should take a look at nuclear energy as a source of energy."
Solar and other forms of renewable energy just don't have enough capacity to be able to power fast growing nations. The Intergovernmental Panel on Climate Change (IPCC) has also endorsed nuclear energy saying it's one of the few "commercially available climate change mitigating technologies."
Even with uranium prices at a seven-month high, big players like Cameco (NYSE:CCJ) and Rio Tinto Group (NYSE:RTP) still foresee a shortfall in supply in a few years. Lower prices have caused some miners to scale back, such as Uranium One (TSE:UUU) who scaled back exploration and spending in Kazakhstan.
The Bottom Line
Look into investments in uranium miners to catch the next shift in energy policies worldwide. Although having solar panels on the roof of your house gives you a nice righteous feeling, the reality for the future is nuclear and uranium suppliers are the play. (For a read on a related topic, take a look at Forget Green Stocks, "Green" Will Do.)