For those of you who decided that the big sell order for all your GT Advanced Technology (GTAT) stock wasn’t so urgent that you needed to get it in right away on Friday and decided to go ahead and take care of it Monday afternoon, you should maybe sit down for this…
Solar equipment technology firm GT Advanced Technologies announced that it was filing for Chapter 11 Bankruptcy, everyone’s favorite chapter of bankruptcy, on October 6 before market open. When it did open, trading on the shares was halted right up until 10:45 AM, when they PROMPTLY plummeted about 90% in value. It was pretty drastic, here’s a quick snapshot of the company’s chart:
Turns Out, Those iPhone 6 Screens Were Really, Really Important
GT Advanced Technologies is likely a familiar name to anyone who watches market drama pretty closely. Even as everyone was abuzz with the iPhone 6 and the Apple Watch, GT Advanced Technologies was plummeting the day of the announcement after it was revealed that the company’s sapphire displays wouldn’t be featured in the new iPhone 6.
Which, of course, raised some interesting questions. Everyone was pretty sure it was bad for GT Advanced Technologies, but the nature of that company’s business model made it relatively unclear just HOW bad. See, the thing is, GT Advanced Technology is, ostensibly, a solar equipment technology company. It started as GT Solar, and it’s also in the business of polysilicon and photovoltaics.
So, while the company may not be getting that sweet, sweet sapphire money anymore, it had some of its previously core business to fall back on, right? With the solar business booming (relatively), the hit should be significant but not totally devastating, right?
Well, turns out, not. Well, maybe. Certainly, it was the diversity of business that President and CEO Tom Guitierrez emphasized while doing the typical, “Hey, no, this is a GOOD thing” song and dance in the company’s press release.
"GT has a strong and fundamentally sound underlying business," he said. "Today's filing does not mean we are going out of business; rather, it provides us with the opportunity to continue to execute our business plan on a stronger footing, maintain operations of our diversified business, and improve our balance sheet.
"We are convinced that the rehabilitative process of chapter 11 is the best way to reorganize, protect our company and provide a path to our future success. We remain committed to our roots in innovation and our diversification strategy. We plan to continue to operate as a technology leader across our core set of businesses."
So, the company may just be using Chapter 11 to hit the reset button with new expectations with the potential loss of a lot of business for its sapphire screen arm. If so, now would be the ideal time to buy in as the market reaction would clearly be an overreaction. Either that or the company’s completely knackered and en route to going to zero and liquidation. If so, now would be a better time to buy in than Friday, but still a pretty lousy time to be getting involved.
Solar ETF Takes the Hit
The really interesting piece of news, though, could be in what happened to the solar industry as a result.
See, I’m a big believer in the future of the solar industry. Anyone who reads much of my stuff isn’t going to find this as a big surprise. I’ve got a disastrously risky portion of my portfolio invested in the Guggenheim Solar ETF (TAN). It’s a long-term investment that I see being pretty solid in the 10- to15-year timeframe.
Whether or not I’m right about that, the short-term perspective is extremely frustrating at the moment. Solar stocks don’t seem to be getting a treatment from the markets that’s entirely related to their actual performance. In part, that’s because it was a HUGE year in 2013. TAN was up almost 130% over the course of that magical year. After gains like that, a pullback seems inevitable. However, without anything specific to catalyze that pullback, you get what 2014 has brought us, swings up and down without a clear sense of where it’s headed. The ETF is still up almost 9% this year, but it’s bounced between clearing $51 a share and under $37 a share.
In part, this is because it’s getting played as the cutting edge of small-cap growth stocks. When the markets are looking up, so are solar stocks. When it’s risk-on-let’s-roll-the-dice times, TAN does pretty well. When people are looking to shed risk from the portfolios, unfortunately, it’s the stocks in TAN that are usually the first to go. Add to that a market that still insists on treating the entire solar industry as a singular monolith, at times seeming to move in and out of stocks without a clear consideration for the specifics of each company.
Solar Industry Tumbles Because of…iPhone 6 Displays?
Which is what brings us to Monday’s trading day for TAN.
TAN plunged 4.47% over the course of the trading day. Which shouldn’t be a shock, GT Advanced Technology is a major part of the ETF, making up 3.23% of holdings, so a 90% loss is going to be felt. However, it wasn’t just GTAT. First Solar (FSLR), TAN’s biggest holding, was off 2.7%; SunPower (SPWR) fell 2.39%; SunEdison (SUNE), which is just behind First Solar for the ETFs largest holding, dropped 2.2%; Trina Solar Limited (TSL) is off 3.85%; Canadian Solar (CSIQ) lost 2.99%; I could keep going but you get the point.
So it’s not just GTAT, the whole solar industry was having a pretty off day. Now, the Russell 2000 fell 0.91% on Monday, so it’s conceivable that the sell-off in solar had nothing to do with GTAT alone and it was simply more risk-shedding from traders. No one’s really going to be able to conduct the sort of comprehensive interviews necessary to know exactly why the thousands and thousands of people were buying or selling these stocks.
However, based on the way the solar industry typically performs, you would have to assume that this was more selling to fit the trend. Once again, declining fortunes for one major solar company meant bad news for everyone else. Alas.
Except that, in this case, it seems clear that GTAT’s issues stem from issues that exist outside the solar industry as a whole. GTAT’s misfortune involved the shifting fortunes of the consumer goods market and a missed order as a supplier rather than a change in the solar industry. So why the huge sell-off for the other stocks in TAN? Did anything about the future prospects of First Solar really change enough to warrant a 2.7% decline?
Alas, for TAN holders like myself, this is the current state of affairs. A set of circumstances seemingly unrelated to the actual business of generating electricity directly with solar energy ultimately means you’re taking a big hit. Sure, mostly because it’s in TAN, but also because it managed to pull down the rest of the industry by association.
The solace should of course be that it will likely bounce back just as fast as it fell. Solar stocks are still something of a roller coaster and that doesn’t appear likely to change for a while.
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