First Solar Rumor Boosts 2 ETFs

Rumors that First Solar FSLR, the largest U.S. solar firm, is once again a takeover target have been predictably good for that stock as the shares are up 5.8 percent on above average turnover in midday trading. The two solar ETFs where First Solar makes a home are trading higher after a rumor that First Solar could be a target for General Electric hit trading desks earlier today. While chatter of a First Solar takeover dates back to at least 2010, shares of the Guggenheim Solar ETF TAN are up 2.34 percent on the rumor while the rival Market Vectors Solar Energy ETF KWT is up 2.51 percent. TAN, which has $63.1 million in assets under management, has a weight of 8.74 percent to Arizona-based First Solar, making that stock TAN's second-largest holding. First Solar is KWT's third-largest holding at a weight of 8.14 percent. KWT has $12.4 million in assets. Arguably, today's bounce in First Solar, KWT and TAN could prove to be a "buy the rumor, sell the news" event, particularly because the news could wind up being no deal is imminent for First Solar. This is not the first time GE has been rumored to be a suitor for First Solar. That rumor initially sprang up in 2011. Worth noting is that First Solar continues to live dangerously with regards to its membership in the S&P 500. With a current market capitalization of just over $2.8 billion, First Solar is tied with five other stocks for the lowest weight within the SPDR S&P 500 SPY. Of that group of five, Apollo Group APOL, Advanced Micro Devices AMD and Big Lots BIG have smaller market caps than First Solar, implying there is some buffer between the solar firm and possible expulsion from the S&P 500. While there has been no confirmation that First Solar will be booted from the S&P 500 upon the next rebalancing of that index, should that event take place, the stock and the aforementioned ETFs will likely suffer. The reason being scores of index funds that track the S&P 500 will have to sell First Solar and replace it with the new additions to the index. There are myriad candidates to replace First Solar in the S&P 500, including Old Dominion Freight Line ODFL with a market cap of $3 billion. Sears Holding SHLD was expelled last year, but now has a market value north of $5 billion. For more on ETFs, click here.