SunEdison, Inc. (NYSE:SUNE) stock is uglier than a grandpa’s toenail.
Only a few weeks ago, shares of the solar energy giant were trading for over $30.00. But as investors started to worry about oil prices, interest rates, and the global economy, SunEdison stock has lost more than two-thirds of its value. Yet behind the awful headlines, a bottom might be beginning to form.
The issues at SunEdison are twofold. First, low oil prices have dampened investor enthusiasm for renewable energy companies. Solar power projects were difficult to justify when crude was trading over $100.00 per barrel. They make little sense with prices plunging below $50.00.
Even if the correlation between power and crude prices is minimal, a slowing global economy is going to cut into demand for new infrastructure projects. Fewer office towers going up in China translates into fewer Caterpillar factories being built in America. All of which means we don’t need as many solar panels.
Second, SunEdison has a lot of debt. And with the Federal Reserve expected to raise interest rates in the next few months, the company is going to have to shell out a lot more cash to service those liabilities. That could put a big crimp in management’s expansion plans.
SunEdison recently pulled off a convertible debt offering in an effort to shore up its balance sheet and buy executives some time. However, the big drop in SUNE stock made such a transaction expensive. Dropping more assets into yieldco—fixed income-like assets with high dividend yields—used to be a fast way to raise cash. Unfortunately, waning investor demand is pushing this option off the table.
With all of this going against the company, it’s no wonder shares have plummeted. But where is the stock going next? Trading action in SUNE stock gives us some clues.
Charts courtesy of www.StockCharts.com
Not to sound like Captain Obvious, but SUNE is in a downtrend. As a rule, I never try to pick bottoms. Trends can continue far longer than anyone expects and you never want to try to catch a proverbial falling knife.
However, there’re a few minor points that make me optimistic on this stock. First, the recent rally has penetrated the falling trend line. That gives me some confidence this run is more than just a dead cat bounce.
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More impressive, though, is the volume. On August 26 and September 1, (highlighted in circles), shares soared on huge volume. Increasing price and growing volume is a clear sign the stock is being accumulated. Some smart money investors want shares badly and they’re willing to pay up for the stock.
Typically, we can only speculate at exactly who those buyers are. In the case of SUNE, however, we got our answer only a few days later. On Monday, August 31st, SEC filings revealed billionaire investor Steven Cohen had acquired a 16 million share stake in the firm, valued at about $165.9 million. (Source: Point72 Discloses Stake in SunEdison, The Wall Street Journal, August 31, 2015.)
You don’t get many endorsements better than that! Cohen is one of the smartest investors on Wall Street, which is why I always pay close attention to what stocks he’s buying. And right now, we have an opportunity to get in on this deal on the same terms as this billionaire money manager.
Personally, I tend to wait until the uptrend is firmly established before buying a stock. However, these indicators suggest a bottom could be in place. That would be welcomed relief for SunEdison’s exhausted shareholders.
- Billionaire Steve Cohen Bought Millions of Shares of SunEdison, Inc. (NYSE:SUNE), Should You Follow?