TagTeam: Solar Plays Are Looking Hot

Editor's note: This is the inaugural column of "TagTeam," a series that will be jointly written by Mark Manning and David Sterman. In this piece, Manning will be looking at the chart action of major indices and stocks in the alternative energy space, while Sterman will weigh in on the current fundamental trends in the sector. The authors encourage your feedback and any suggestions for future industries to analyze.

David Sterman: The alternative energy sector has taken a beating in recent months, as I noted in this piece. Still, the industry's long-term prospects are very strong despite the sagging stock prices.

Mark Manning: The new administration's energy plan for America will require 10% of electricity to come from renewable sources by 2012. The Renewable Portfolio Standard will require that by 2012, one-tenth of electricity consumed will be derived from clean, substantial energy sources, such as solar, wind and geothermal. That figure will increase to 25% by 2025.

The administration plans to create 5 million new jobs by strategically investing $150 billion over the next 10 years. That money is expected to catalyze private efforts to build a clean energy future. President-elect Obama will also extend the federal production tax credit for five years to encourage the production of renewable energy, which should help many different sectors in the clean energy area.

So which companies are best positioned to benefit as the new administration starts to put its plans into action? Research should start with the "blue-chip" of the solar industry -- First Solar (FSLR - commentary - Cramer's Take). Shares of FSLR passed the $300 mark back in May but then fallen more than 70% to below $90. The stock has since rallied hard, trading around $135 today.

DS: Mark, this stock, along with the group, was hit by the perfect storm. First, the whole market collapsed, hitting speculative sectors such as alternative energy especially hard. Second, the credit market seizure raised questions as to whether corporations and consumers -- who tend to borrow money to install solar -- still had the ability to spend. Third, investors realized that a lot of new production capacity was about to come in-line, pushing supply ahead of demand in the near term. You know what that can do to prices. Lastly, investors assumed -- incorrectly -- that the falling price of oil and coal would kill demand for green energy.

---

At time of publication, Manning and Sterman had no positions in the stocks mentioned.