In a sign that solar stocks are going to have a lot of business, Q Cells has signed a 10 year contract with LDK Solar. Q Cells, based in Germany, is the largest manufacturer of solar cells in the world. There stock is listed on the Frankfurt Stock Exchange. LDK Solar is a NYSE listed stock, based in China.
The 10 year deal calls for LDK Solar to provide no less than 20,000 metric tons of UMG solar grade silicon. The agreement began immediately on Friday, September 12th, 2008. There is also an option for both parties to produce up to 21,000 more metric tons over the same time period. Along with these two contractual agreements there was also a memorandum of understanding between the two companies.
This memorandum is an indication that LDK is going to have a long-term business partner. It indicates that in addition to the two mentioned agreements, that Q Cells will be supplied up to five mega watts of solar wafers by LDK. And as Q Cells is the worldwide leader in solar cell production this could eventually lead to more committments. LDK investors now have to realize a greater deal of safety in their investment. This is the biggest solar contract ever. No matter what else happens within the LDK business they are going to have a high degree of business and fulfillment of this contract.
Mr. Peng, the CEO of LDK, stated that this collaboration is a sign that his company produces a high quality product. He also named two of the products LDK would sell to Q Cells, those being Nova wafers and a more standard wafer made from high purity polysilicon. Mr. Milner, the CEO of Q Cells, congratulated LDK for their reliability and quality.
Now given this situation, you might think that LDK shares rose on Friday. Well, they did. LDK stock opened at $41.62, up $.89 on the open of trading. The stock quickly moved up and traded at an intra-day high of $43.40 per share. Then the stock started to retreat and ended up the day at $40.76, up a whole nickel for the day. In the end, not quite much of a rally for such an enormous accomplishment.
LDK has been falling in general since a recent high of $51, back on August 29th. Much like other solar stocks it has been hit hard by the collapsing price of oil which has been declining rapidly since July. Nearly all of the solar stocks have been on the decline lately and this tepid rise on Friday is a bit of an omen for LDK Solar.
Although this deal is a great prize for LDK's future, for the moment investors might want to be guarded. There are two ways to look at LDK as an investment play. First, to wait and see how the company trades this week. If it appears to have strength (and other solar stocks are rallying) then it could be considered a buy for a quick gain. Second, plan on potentially going into LDK Solar as a long-term investment. If the stock does continue to drop, then investors could dollar cost average into the LDK shares regularly. Or just set-up buying more shares at lower price points.
The good news is that if you buy LDK (or currently own it) this deal is going to provide a strong basis for the company over the coming years. The Q Cells agreement makes LDK a stock to buy for a trade, with the possibility of getting a long run investment. If you are looking to take a major long-term investment in solar, consider LDK as a strong candidate.
