Is Wind a Better Bet Than Solar?

NEW YORK (TheStreet) -- The latest pessimistic outlook for solar investors was provided on Tuesday by JPMorgan Chase analyst Christopher Blansett.

The JPMorgan analyst began his negative turn on solar by downgrading three of the U.S. solar stocks that he covers -- First Solar(FSLR), Evergreen Solar(ESLR) and Energy Conversion Devices(ENER).

More notably, however, Blansett recommended to JPMorgan clients -- from hedge funds to pension funds -- that they forsake solar and focus their renewable-energy investing on the growth of the U.S. wind industry, at least for the next two years.

Blansett is far from alone in this position. Several solar analysts have noted in recent weeks that institutional investors seem to have tired of solar and have been looking for alternatives in the renewable sector to maintain their exposure. Blansett says that most institutional investors have decided that solar is a lot of work for little reward. Over time, as there are more wind-focused pure-play companies, institutional investors will look more toward wind and move away from early solar-centric investing.

JPMorgan initiated coverage of the U.S. wind sector on Tuesday, with an overweight rating for Broadwind Energy(BWEN). The analyst's bullish call on wind sent shares of Broadwind up by more than 6% on the day.

Granted, just when the right moment to enter wind as an investment arrives -- if you believe in the wind theme -- is still unclear. The JPMorgan analyst noted that he expects Broadwind shares to bottom in the first quarter of 2010.

In fact, that bottoming may have been taking place on Friday, as Broadwind released a pretty ugly fourth quarter earnings report and shares fell 20%. Broadwind management also guided to a bottoming in the first half of 2010.

The eternal question in investing is whether the damage will get worse before it gets better, or whether investors who wait to long to call a bottom will miss the rally.

Solar companies have, of course, been using this earnings season as a pulpit to play up the first-half demand from Germany, and argue for the second half pull-in from other major markets including the U.S., China and Italy. What's more, some of the capacity expansion plans -- reaching as high as 1 GW to 1.25 GW per solar company -- have sparked fears of a seriously oversupplied sector.

The JP Morgan analyst shares these fears, estimating that the solar oversupply in the second half of 2010 could run as high as 3 gigawatts to 4 gigawatts on an annualized basis.

TheStreet spoke with Blansett on Tuesday about his sour solar sentiment and his newfound preference for wind.

TheStreet: What's your basic thematic argument in favor of wind, relative to your solar outlook?

Blansett: It is clear that Europe, which has been driving demand for solar, is basically saying subsidies will be coming down in all the countries -- at different times and at various levels of reductions, but the theme is clear from Europe.