JA Solar's Shares Surged: What You Need to Know

Anders Bylund, The Motley Fool
Updated

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chinese solar cells maker JA Solar (NAS: JASO) posted intraday gains as strong as 11% in fairly heavy morning action.

So what: Two analyst upgrades are snatching JA Solar back from yesterday's fresh 52-week lows amid general skepticism over solar stocks. Valuations on Chinese solar stocks in the low single digits are getting out of hand, says Goldman Sachs, suggesting that a rebound should be on its way for JA and rivals including LDK Solar (NYS: LDK) , ReneSola (NYS: SOL) , and Trina Solar (NYS: TSL) . All of these stocks are up sharply today.

Now what: The industry does look amazingly and temptingly cheap, but you still need a healthy appetite for risk before investing here. Even JA Solar bull Axiom Capital, which upgraded the stock to a hold this morning, sees dark clouds on the horizon. A squeeze on this heavily shorted stock could juice returns in the short term, but JA and other industry players are operating on cheap and plentiful business loans that mask terrible balance sheets. A "credit event" could be coming for JA Solar in 2013 according to Axiom, so you'd best keep an eye on debt and cash balances in this sector. Here, we'll help:

At the time thisarticle was published Fool contributor Anders Bylund holds no position in any of the companies discussed here. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is investors writing for investors.

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