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Update TSL, SIGM

May 30th, 2008 · No Comments

Trina Solar first. This now looks like breaking support levels. It’s entirely sectoral, and as we reported the last couple of days, suddenly the sector is snuggling up to oil prices. So another drop in oil, another drop in the solars. Any reason for a sell-off.

There are no fundamental worries that we can see, it’s just that the market perceives this (unjustly, in our view) as a risky sector, and since it had a nice rebounce until a week or so ago, the market will grab any excuse to sell it off. There is not more to it.

That is not the case with Sigma Design (SIGM), unfortunately. Just as we thought that all possible bad news should be reflected in the price by now, it drops further in after hours. Earnings were not pretty. We think the sell-off is overdone, but the market doesn’t agree with us.

They disappointed by just 2 cents (5%), considering the sell-off they experienced the last half year or so we think we have a pretty strong case to say that the bad news is already more than reflected in the price. Two reasons were mentioned, as far as we could make out:

  • The inventory problem at AT&T and Motorola (a prime customer of IPTV and it’s supplier of set-top boxes which enable it to provide those services). This should be a one-off, but it is a lingering issue, which could suggest that the uptake of IPTV is not going as fast as expected
  • Blue-ray market is taking of slower than expected.

Neither of which was actually a surprise. We once suggested a stop-loss just above $20 (at which price we advised you to buy). What to do, sell? To be honest, if it opens at the levels of after market ($18), we can’t really see much reason to sell anymore, although the horrible truth is that there isn’t much reason to buy it either.

Because another problem is the lack of guidance by management. They do not seem entirely on top of things and they will have lost a good deal of credibility right now, so there is no immediate trigger to bring it higher, apart from the fact that it is cheap. But fear rules now, and it is overpowering greed here at the moment.

You also have to realize that as with InterOil, this is not a rational market. The heavy short count indicates that this is a favourite play of some hedgefunds, and these smell blood. And without any imminent catalyst to bring it back up again, things could even get worse.

The fundamentals are still good, the stock is cheap, it is profitable, it is very well positioned in a couple of new growth markets, and it has a sound balance sheet. If you have the patience for those values to prevail, we would suggest you sit it out. But it could be a pretty long sit. If you need the money, get out.

Tags: SIGM · TSL