After spending much of the Great Recession recovery in the dark, solar stocks had one of their best years on record in 2013. A variety of factors — from dwindling costs to rising subsidies in key markets like China and Japan — helped the fortunes of top solar stocks finally catch up to the their long-term promise.
Overall, the Guggenheim Solar (TAN) — a broad measure of solar stocks — is up a staggering 120% so far this year. That impressive return makes TAN one of the best ETF investments for 2013 … not too shabby for a fund that was facing dwindling assets, a reverse split and price tag under$2 just a year ago.
What’s more impressive is the fact that some solar stocks did even better, boasting returns in excess of 300% for 2013. Meanwhile, 2014 could bring more of the same to the sector.
Hottest Solar Stocks – First Solar (FSLR)
YTD Performance: +79%
As the leader in the sector, it stands to reason that First Solar (FSLR) would be one of the best performing solar stocks over the last year. Throughout 2013, FSLR stock managed to produce a nearly 80% return.
The key driver for FSLR stock has been strong earnings thanks to its focus on building grid-scale projects has paid off. See, First Solar designs, builds and operates huge solar farms for utilities — something that is turning out to be a very profitable niche.
FSLR managed to produce a huge $2.28 per share in earnings for its last quarter — a nearly 80% increase year-over-year and 140% better than what analysts predicted.
With FSLR managing to book about 860 megawatts (MW) of new utility-sized projects during the quarter, the solar stock’s backlog up has jumped to 2.7 GW. With the bulk of those projects located overseas and in key markets, FSLR stock should continue its march higher into the new year.
Hottest Solar Stocks – SolarCity (SCTY)
YTD Performance: +332%
While you can make pretty good bearish case for SolarCity (SCTY), there’ no denying that it’s been one heck of solar stock trade so far this year. SCTY stock has surged over 330% throughout the year.
Unlike FSLR and its peers, SolarCity doesn’t focus on the grid-scale space, but on the consumer. SCTY doesn’t actually make panels or wafers; it installs such products for residential and small commercial clients.
And as an installer, SolarCity is expanding quite rapidly. During the third quarter, SCTY managed to add 12,386 new customers — a whopping 92% surge year-over-year. Additionally, the glut of cheap panels has actually helped SCTY on the profit margin front, while rising subsidies in its home-turf of California has helped more people afford to use its services.
This huge bump in new clients, as well as its relationship with Tesla’s (TSLA) Elon Musk, has helped SCTY stock perform so well.
With the new year fast approaching, analysts anticipate that SCTY stock could see more gains as additional customers come calling. Overall, SolarCity is the solar stock to buy.
Hottest Solar Stocks – JinkoSolar (JKS)
YTD Performance: +338%
While it’s not as well-known as some other solar stocks, JinkoSolar (JKS) was one of the best performers in 2013. JKS stock has managed to return about 340% this year as the glut of cheap Chinese panels has subsided.
Unlike FSLR and similar solar stocks, JKS is a pure play manufacturer of wafers, modules and cells. That means Jinko is directly vulnerable to cheap panel pricing.
However, with rising feed-in tariffs in its home market of China, along with the Japan and emerging Asia, solar panel prices have begun to rise on renewed demand. That’s helped JKS stock rise from the dead this year.
Margins at JinkoSolar have also improved, and analysts estimate that they will continue to improve to throughout 2014. JKS should be able to realize 15% to 20% gross margins in 2014 as Japan and other Asian nations install a record amount of solar energy. That should certainly help JKS stock and its balance sheet in the new year.
Hottest Solar Stocks – Canadian Solar (CSIQ)
YTD Performance: +744%
Let’s face the facts: Canadian Solar (CSIQ) was basically left for dead as investors abandoned the sector. Canadian Solar stock started off 2013 with a measly $3.40 share price. Well, 744% later, CSIQ is one of the hottest solar stocks around, and is the second best performer on the Nasdaq this year.
The key for CSIQ was following the playbook of FSLR and becoming a developer of utility-sized solar farms. More than 41% of Canadian Solar’s third-quarter revenue came from developing solar farms and not selling direct panels. That helped CSIQ realize a 30% jump in revenue and earnings of 56 cents per share.
With more utility-sized deals coming its way, Canadian Solar stock is poised to keep growing in 2014. Analysts have a $42 price target for CSIQ stock, which translates to more than 45% upside.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.