Solar stocks have sold off sharply recently, but don’t count out the sector just yet. The Guggenheim Solar ETF (TAN) remains up more than 70% year-to-date in 2013, and the recent decline may be a decent opportunity to get in cheap.
First, the bad news in solar stocks…
First Solar (FSLR), the largest U.S. solar panel manufacturer, reported a mammoth 70% drop in profit and cut its forecast for the year when it reported earnings a few days back. First Solar earnings sparked a steep 14% drop in shares — though it’s worth noting the stock is still up more than 30% since Jan. 1 to outperform the broader market.
Elsewhere in the space, oddly named China stock Canadian Solar (CSIQ) also posted ugly earnings. After missing revenue and EPS forecasts, CSIQ is down about 8% in two days after the negativity after First Solar earnings followed by the Canadian Solar earnings miss.
Across the board, solar stocks sold off on this one-two punch of earnings, including a double-digit decline in SunPower (SPWR), and smaller but substantial hits in China stocks LDK Solar (LDK), Yingli Green Energy (YGE) and Suntech Power (STP), to name a few.
Short interest remains a big factor in the volatility of these stocks. First Solar earnings helped push down the stock in part because about 15% of the stock’s float was held by short-sellers; Sunpower stock had even higher short interest.
But there are hopeful signs for the space, too. To wit:
- Oil remains above $100 a barrel, making alternative energy more enticing than in times of cheap energy.
- General Electric (GE) just got 1.75 million shares of First Solar stock as part of a mammoth solar power partnership that gives FSLR new thin film technology and a path to continued growth.
- China just announced a massive solar power initiative that will “increase fivefold its installed solar capacity.”
- Officials in Beijing have crafted new rules that are highly favorable toward consolidation via mergers and acquisitions — meaning fewer players getting more business, and buyouts perhaps boosting the smaller companies that get gobbled up.
There are still trade issues to work through with tariff tiffs around the world, as well as the risk of continued cutbacks in government spending that will weigh on solar subsidies.
But there are also bullish signs — particularly longer-term, when you consider the continued focus on greenhouse-gas reduction, and the continued march of progress that is making solar technology cheaper and more efficient. There’s also the hopes of an economic recovery that will boost sales after people have more spare cash and can finally afford to be environmentally responsible, since that can sometimes (sadly) come at a premium.
- Three reasons solar stocks will stay hot. (MarketWatch)
- Lawrence Meyers, on the other hand, warns you should give up on FSLR. (InvestorPlace.com)
- Did GE give up on solar with its First Solar deal? (GreenBiz)
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not own a position in any of the stocks named here.