Could the Clouds be Lifting on Solar Stocks?

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For solar stocks, it’s been a case of sunrise and sunset for the past several years.  Unfortunately, 2010 has been much more a case of sunset than sunrise with several previous winners laboring under gray skies. This includes Energy Conversion Devices (NASDAQ: ENER), industry-giant First Solar (NASDAQ: FSLR) and Suntech Power Holdings (NYSE: STP).  Of course, other high-profile solar stocks have shone in 2010, with big gains for GT Solar International (NASDAQ: SOLR), JA Solar Holdings (NASDAQ: JASO) and RenaSola (NYSE: SOL).

These stocks represent the extreme losers and extreme winners in the space, but Exchange-traded funds (ETFs) pegged to the solar industry such as the Guggenheim Solar ETF (NYSE: TAN) and the Market Vectors Solar Energy ETF (NYSE: KWT) both are deep in the red this year.  TAN is down -27.42% year to date (as of 12/9/10), while KWT has fallen -27.40%.

Yet if we look at the chart below of TAN, we can see that after falling to its November low, the fund actually has fought back nicely.  And while TAN still trades below its 50- and 200-day moving averages, the most recent price trend in the sector shows that perhaps the clouds are starting to lift.

If we see continued buying in the sector, we could see a run similar to the move made in June after solar stocks fell to their 52-week low.  In fact, from its nadir in June through its recent peak in mid-October, TAN shares surged over 50%.  It’s this capacity for such big moves that has made the sector so attractive to risk capital.

Now, in terms of the fundamental outlook for solar stocks, here we have a mixed bag.  On the plus side, we’ve seen strong recent earnings from the likes of First Solar, which last month registered a 66% jump in year-over-year net sales in the third quarter.  Chinese solar player Suntech Power Holdings recently forecast higher-than-expected profits for 2011 on what it anticipates to be a near 50% jump in sales.  The company also said that its peers (First Solar, JA Solar Holdings (NASDAQ: JASO) and Trina Solar (NYSE: TSL) have seen demand for solar modules jump this year as demand outstripped supply.

TICKER NAME YTD% RETURN as of 12/09/10
ENER ENERGY CONVERSION DEVICES -55.25
FSLR FIRST SOLAR INC -1.91
SOLR GT SOLAR INTERNATIONAL INC +62.68
TAN GUGGENHEIM SOLAR ETF -27.42
JASO JA SOLAR HOLDINGS CO LTD-ADR +25.61
KWT MARKET VECTORS SOLAR ENERGY -27.40
WFR MEMC ELECTRONIC MATERIALS -11.38
RSOL REAL GOODS SOLAR INC-CLASS A -23.22
SOL RENESOLA LTD-ADR +86.35
SPWRA SUNPOWER CORP-CLASS A -45.73
STP SUNTECH POWER HOLDINGS-ADR -49.79
TSL TRINA SOLAR LTD-SPON ADR -13.21
YGE YINGLI GREEN ENERGY HOLD-ADR -33.97

However, Suntech also said that a steep increase in production capacity across the industry as well as declining incentives in key European markets could lead to an oversupply next year, and that could hurt the sector’s profit margins.

Compounding these negatives going forward is the fact that solar power actually remains expensive when compared to traditional fossil fuel energy sources, and even when compared to other alternative energy sources such as wind and nuclear power.  Without government subsidies, the cost of solar power is around $90 per megawatt-hour at the very lowest end, and it could be north of $200 at the top end.

Despite the decline in government subsidy support from European nations such as Germany and France, there will likely be growth in many of the world’s biggest solar markets next year, including the U.S., Italy and Japan.  The real growth market, however, could be China.  If we see Beijing rollout the much-speculated-on feed-in tariff, which basically guarantees price support for solar, it could mean a huge solar flare in the sector that would certainly burn off the clouds and bring buyers back out into the sun.


Article printed from InvestorPlace Media, https://investorplace.com/2010/12/could-the-clouds-be-lifting-on-solar-stocks/.

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