[Editor’s note: “3 Solar Stocks to Buy for a New Day in Solar Energy” was previously published in October 2019. It has since been updated to include the most relevant information available.]
Solar stocks have really taken it on the chin this year, but the huge declines are totally unjustified, creating a great buying opportunity for longer-term investors. As I’ve noted in the past, I’m convinced that JinkoSolar (NYSE:JKS), SunPower (NASDAQ:SPWR) and Daqo New Energy (NYSE:DQ) are great solar stocks to buy.
And the recovery could be underway, JKS stock has added 7% YTD, SPWR stock has added 42% and DQ stock has added a whopping 60% after a dismal 2018.
The catalyst for the retreat of solar stocks appears to have been a decision by the Federal Energy Regulatory Commission to eliminate “a requirement for utilities to offer long-term fixed prices for qualifying facilities.” More specifically, many investors may have sold solar stocks due to dramatic language used by Democratic FERC Commissioner Richard Glick, who claimed the FERC’s decision could pose a major threat to the proliferation of renewable energy in the U.S.
But I’ll give those who have been completely avoiding the news for the last year a tip. The U.S. is going to have a very consequential presidential election in just over a year. Appointed officials are very political, and Glick was trying to dramatize the ramifications of the vote for partisan purposes.
Much more trustworthy are the assessments of apolitical Greentech and Colin Smith, the senior solar analyst at Wood Mackenzie Power & Renewables. Greentech said that the vote would have a “muted impact” on U.S. solar. Smith maintained that the decision would affect less than 5% of solar projects under development today. That news appears to have taken hold.
Other much more powerful catalysts will ultimately have a bigger impact on solar stocks. Among these are the increased price competitiveness of solar energy in China and solar energy mandates in the U.S. Below I’ll explore how JKS, DQ and SPWR will be positively impacted by these trends.
Researchers from the KTH Royal Institute of Technology, Mälardalen University and Tsinghua University determined that, in all major Chinese cities, solar energy can be produced more cheaply than electricity from the grid. The research was originally reported in the journal Nature Energy.
Meanwhile, the China Electric Power Planning and Engineering Institute has estimated that Chinese electricity demand would surge nearly 6% this year. Higher demand, combined with lower prices, is usually a winning formula for companies.
Moreover, JinkoSolar’s margins are likely higher in its home market because of lower shipping costs and the absence of any tariffs. Consequently, the coming expansion of solar energy in China should have a tremendously positive impact on Jinko’s bottom line.
Also interesting is that, as of the end of the second quarter, the holders of JKS stock include some of the biggest names on Wall Street. The list includes names like Bank of America (NYSE:BAC), Citigroup (NYSE:C), Morgan Stanley (NYSE:MS) and UBS (NYSE:UBS). Those big boys are usually not all wrong about a stock.
SunPower stock should benefit from four strong trends that are boosting solar energy in the U.S. SPWR will be boosted by the increasing cost-competitiveness of solar energy. But within America, SunPower is also getting huge lifts from state renewable energy mandates and from the increased use of solar energy by companies.
Many states have passed laws requiring their utilities to obtain a specific percentage of their electricity from renewable energy. Of course, since solar is a leading renewable energy source, these mandates will cause demand for solar power to surge tremendously. And because SPWR is exempt from America’s solar tariffs, it should benefit.
For example, California is requiring its utilities to obtain 44% of their electricity from renewable sources by 2024. Plus, the state will require all new homes to be equipped with solar panels. SPWR’s strategic partnerships with roofing companies should help it leverage this opportunity.
And recently, there’s been a sign that other governments controlled by Democrats could follow California’s lead. Montgomery County, Maryland is poised to propose that all new homes in the county have solar panels by 2022. There are 1 million people in the county. If the trend spreads, look for SPWR stock and many other solar stocks to really take off.
Daqo New Energy (DQ)
Like JKS, Daqo New Energy is likely to benefit from the relative cheapness of solar energy in China. Also based in China, DQ sells polysilicon which is used in the construction of solar modules. Among DQ’s major customers are JKS and another Chinese solar powerhouse Longi Green Energy.
Furthermore, as I reported last month, DQ has said that, “during the current quarter, demand for polysilicon in China will exceed supply, causing polysilicon prices to increase.”
As of June, many Wall Street heavyweights held meaningful amounts of DQ stock.
JKS and DQ should benefit from the low price of solar power in China. SPWR stock is exploiting multiple, ongoing trends in the U.S. and all three names are very cheap.
The market caps of JKS stock and DQ stock are both well under $1 billion, while their forward price-to-earnings ratios are a tiny 6 and 5, respectively. SPWR is more expensive, as the market cap of SPWR stock is $1.4 billion and its forward P/E ratio is 53.6. Still, its huge opportunity in the U.S. definitely makes it worth buying.
As of this writing, Larry Ramer owned shares of JKS, DQ and SPWR stock.