Investors should sell First Solar Inc. shares and buy bullish options to profit from a rally by the world’s biggest maker of solar power modules while limiting their risk on alternative energy, JPMorgan Chase & Co. said.
Equity derivatives strategists Amyn Bharwani and Marko Kolanovic recommended selling First Solar shares and buying December $125 calls to profit from further gains in the stock. First Solar has risen 22 percent since June 9 to $126.14.
The strategists cited JPMorgan alternative energy analyst Christopher Blansett, who said on July 14 that First Solar has limited potential because the risk of a double-dip recession will keep energy prices low and because of “legislative uncertainty” in Europe and the U.S. The analyst wrote on July 30 after First Solar’s second-quarter earnings report that the “company continues to execute well, however we remain cautious due to the declining subsidy outlook in Europe.”
Blansett has an “underweight” rating on the stock with a December 2010 price estimate of $99.
“Investors who agree with the J.P. Morgan analyst and are long the stock may want to consider replacing their stock with First Solar call options,” Bharwani and Kolanovic wrote in a report today. It is an “opportune time to realize the gains” in the stock “but continue to have upside exposure through call options.”
First Solar, based in Tempe, Arizona, reported July 29 that second-quarter net income fell 13 percent as panels were held for use on its own projects, reducing sales to customers, and as the euro declined against the dollar. The stock has fallen 6.9 percent since then.