Monday, October 8, 2007

Bought LDK @ $38.80


I mean, really, what gives?

A disgruntled guy leaves the company makes all these allegations and the stock loses half it's value? Then Barron's jumps on the bandwagon.

What's an investor to do?

Well, I bought 75 shares at $38.80. That should underscore how confident I am that everything will turn out just fine for this small Chinese solar company.

Or, I'm just guessing it's way oversold and due for some type of small bounce. I'll add to the position if it can show some signs of life. I'll sell when either the sun burns out or they discover the oceans are really made of oil.

So for now my swing account reads:

300 DSL
100 NMX
75 LDK
-100 JRJC

7 comments:

Reese said...

DT,
I was thinking the same thing and almost picked up a whopping 100 shares for fun. But as much as I hate Barrons, with them saying that profits are overstated, she might have a little more room to move down as scared investors continue to jump off the boat. Good luck with it and I'll be looking to join you on the trade if she settled a bit.
Reese

Dinosaur Trader said...

Reese,

Yeah, this is why I'm just dipping my toe in here... I wouldn't be surprised if it traded down a couple more points but I would be surprised if it saw $30 before it saw $40 again.

We'll see.

-DT

wincity said...

I want you to sell LDK now.

This is from Robert Hsu who writes a newsletter on China stocks. This is his recommendation and now he says sell.

The after-hours drop might have to do with this.

Wish I had shorted it the last few days.

Dinosaur Trader said...

Win,

That's great. But if Robert Hsu knows so much about LDK why didn't he tell all of his followers to sell when it traded $60? or $50, or $40?

I mean, I'm not saying I'm happy someone else is out shitting all over the company, but unless he's brought some new information to light I'll probably stick with my trade. I plan on selling if it trades and stays below $35... not sure where it is AH...

Thanks for the info though. I just hope Robert Hsu missed this one.

-DT

Dinosaur Trader said...

Hmmm... trading $35.80 after hours. What more can be thrown at this company?

I think tomorrow will mark a near term bottom. I mean, I guess the company can come out in a day and be like, "yeah, we're a bunch of frauds, fuck you!" but I kind of doubt it.

Fear fear fear until they come out and face the music. Then, a bottom.

That's my hope. And of course, hope is never good when trading...

-DT

wincity said...

Here you go, for whatever it's worth. I figure he doesn't have anything new to say but he kind of lost confidence in the management.

Dear MR. Blah Blah,

Bad news about our solar wafer manufacturer LDK Solar (NYSE: LDK) keeps coming. Its share price fell sharply again today after a Barron’s article made additional negative allegation regarding LDK Solar’s financial controls and technology. Let’s go over the situation and I will tell you exactly what you should do with the stock.

Last week, I told you that a former LDK employee raised concerns about the company’s inventory. The stock dropped on the news as investors worried about the company’s future. At that time, China was in the midst of a national holiday and I was unable to contact company executives for direct questioning.

That is why I initially moved the stock to a hold. Based on our history with the company, I thought it was prudent to wait for more information before taking action. Today, Barron’s published an article with a strong bias against China’s solar industry. That has helped change my mind on LDK.

The article starts out describing China’s solar-power industry as a “red-hot bubble” and went on to describe conversations with an insider at LDK that pointed to serious manufacturing concerns. According to the article, “the company's silicon ingots were indeed so impure that a recent production run had produced tons of them that were too contaminated for technicians to even analyze with instruments.” This is pretty damaging for the company and I don’t think the stock will be able to bounce back to previous highs in a reasonable amount of time.

I’m still bullish on the solar industry as a whole, which offers an alternative source of clean and renewable energy. Solar energy is a viable technology, and there are still plenty of opportunities in this industry. Chinese solar companies have a cost advantage in this commodity product, and unless a non-Chinese firm develops a major technological advantage, Chinese firms will continue to gain market share in the industry. This is why we will continue to hold our investment in Suntech Power (NYSE: STP).

What to Do with LDK Now

In the article, the Barron’s writer questions the technology that LDK uses to produce wafers. Unlike the writer at Barron’s, I don’t want to speculate about this technology, which is mature and has been in use for years. The problem for us as China Strategy investors is LDK’s management.

This afternoon, LDK Solar addressed investors’ concerns, saying that it would soon report on its inventory levels. Chief Financial Officer Jack Lai said that the company would file a report with the SEC soon. This report will publish information reconciling data from a management assessment and independent auditing firm KPMG. It will make a final determination of LDK’s inventory of polysilicon.

Regardless of the investigation’s results, it is clear that LDK’s management dealt with this situation in an unsatisfactory manner. This makes me question the company’s management capabilities and financial controls. Though the company has responded to inventory allegations, I view its conference call and subsequent press releases as murky at best. As of today, LDK Solar’s management team still has yet to reply to the questions I sent them last week.

Although we do not know what the audit results will be, we do know that LDK’s management team does not have the required skills to handle crises effectively. Here at China Strategy, we only want to invest in top-tier companies with world-class potential. LDK’s upside potential from here is limited and I gave management a fair chance to address our concerns. Given the uncertainty surrounding the stock and the lack of clear leadership from the company’s management, we should exit our position. I want you to sell LDK now.

Sincerely,

Robert Hsu
Editor, China Strategy

Dinosaur Trader said...

Win,

Thanks for taking the time to post that.

Well, yeah, sounds bad. But really, looks like the guy is mostly leaning on that Barron's article. Still, it won't help sentiment much... at this point, even if it does bounce a little there will be waves of sellers there to meet it.

I don't think this will be a "long term" swing for me.

Thanks again,

-DT