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Solar Stocks Face Cloudy Days Ahead

Investors should stick to broad solar plays, like TAN

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There’s no denying that solar stocks were one of the best-performing sectors of 2013.

ETFs to Buy - TANThe broad sector measure — the Guggenheim Solar ETF (TAN) — managed to surge by more than 120% throughout the year as a combination of dwindling costs and rising subsidies top solar stocks finally catch up to the their long-term promise. The sun was certainly shining for the PV markers.

But then the clouds started rolling in.

A litany of problems hit the sector hard — from dwindling subsidies and oversupply to dumping investigations and import tariffs. In fact, solar stocks were hit so hard, several manufacturers — like LDK Solar (LDKSY) — began to file for bankruptcy.

Which brings us to today.

After a series of earnings reports from several chief producers, the outlook for the solar stocks could only be described as partly cloudy at best. For investors, it could be a rocky and volatile road ahead for the sector — especially if you bet on the wrong horse.

Either Sunshine Or Thunderstorms

So far, 2014 has been a really mixed bag for the solar sector, and most of it has really come down to each firm’s underlying business model.

Take U.S. solar kingpin First Solar (FSLR) for example.

For the first quarter, FSLR’s earnings jumped 66% year-over-year to $112 million, or $1.10 per share. That came on revenue growth of 26% to $950 million. Both of those gains managed to trump Wall Street estimates. The key for First Solar was its diverse strategy of being both a producer of panels as well as a developer of utility-sized solar farms. Essentially, FSLR builds then leases or sells outright these massive multi-gigawatt power plants to energy starved utilities. So far, those solar farms continue to be a main driver of FSLR’s profits.

The same goes likewise for rival SunPower (SPWR). After losing money in 2012, the firm switched gears and copied the developer model. That helped drive profits of $95 million for all of 2013. It’s continued with the strength in grid-scale solar farms into this year. For the first quarter of 2014, SPWR managed to amass revenues of $683 million.

But it hasn’t all been sunshine.

Take Chinese solar stock names ReneSola (SOL) and China Sunergy (CSUN). Both firms strictly manufacturer cells and solar modules. More importantly, both firms managed to lose money in their latest earnings reports. In fact, they both managed to lose a lot and more than what analysts predicted. SOL managed to miss expectations by about 6 cents per share, while CSUN hit the ball far right by 15 cents.

To be fair, it wasn’t all clouds in world of solar panels. Chinese leader Trina Solar (TSL) managed to hit it out of the park and post a quarterly profit. But TSL’s performance was an outlier, given its size and global scope. The vast majority of the PV panel makers are still hurting hard.

Potential Continuing Clouds

So the real question is whether the good times or bad times will persist for the solar sector. Well, analysts don’t seem bullish on the sectors prospects. Both Credit Suisse and Nomura recently put out negative reports on the industry, saying that several of the solar names are actually shorts.

Article printed from InvestorPlace Media,

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