Chinese investment in the industry is definitely a cause for celebration among investors, but a long-term run on Chinese solar stocks may not rear its head for a while. These stocks have a lot of bad news priced in, and it will take a long time to unwind debt, consolidate, and strengthen their positions.
One of the core components of our CHEAT SHEET investing framework explains that companies riding macro trends tend to outperform those that don’t. Think of the investing proverb, “A rising tide raises all boats.” The tide may be coming in on the back of government support for the industry, but only the strongest individual companies will stay floating.
LDK Solar Co., Ltd. (NYSE:LDK), a Chinese solar company, is among Wednesday’s top gainers, climbing nearly 20 percent in the early afternoon before calming down. The company buoyed itself with an announcement that it has engaged Citigroup to assist it in “discussions with certain creditors to obtain additional flexibility with respect to the terms and conditions of our existing offshore indebtedness.”
That debt load is quite impressive right now: $908.21 million compared to just $111.86 million in cash.
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