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Top Three Solar Stocks for Earnings Season

BOSTON ( TheStreet) -- Solar stocks have heated up, driven by optimism about industry consolidation and an economic recovery. The Guggenheim Solar ETF (TAN) has risen 5.9% in four weeks. The fund's top holdings, First Solar (FSLR), Trina Solar (TSL), MEMC Electronic Materials (MEMC), SolarWorld (SWV) and JA Solar (JASO) have gained as much as 12%. Still, there are preferred plays in the solar space.

The safest way to invest in green energy is through exchange traded funds, such as the Guggenheim Solar ETF. Other notable options are PowerShares WilderHill Clean Energy Portfolio (PBW) and the Van Eck Global Alternative Energy ETF (GEX), which emphasizes large-cap stocks.

Heading into earnings season, the following three stocks receive the highest reviews from analysts. In the following pages, they are ordered by aggregate rating from great to best.

3. JA Solar (JASO) is a Shanghai-based cell manufacturer with a record of outstanding growth. Since 2007, JA Solar has more than doubled its annual revenue, on average, and has amplified its net income by 81% a year, on average.

Q2 Review: JA Solar swung to a second-quarter profit of $29 million, or 18 cents a share, as revenue quadrupled to $353 million. The gross margin widened from 11% to 23% and the operating margin climbed from negative territory to 15%. At the end of the quarter, JA held $339 million of cash and $352 million of debt, equal to a quick ratio of 3.3 and a debt-to-equity ratio of 0.4. Return on equity improved to 13%. Return on assets climbed to 8.1%.

Analyst Opinions: Of analysts covering JA , 13, or 59%, rate its stock "buy," eight rate it "hold" and one ranks it "sell." A median target of $10.87 suggests a 12-month gain of 30%. The stock has risen 47% in 2010 and 5.3% in the past month. Yet, it has delivered an annualized three-year return of negative 16%. Macquarie (MQBKY) predicts that the stock will more than double to $17.50. Jefferies (JEF) forecasts a rise of 67% to $14. Bearish bank RBC (RY) rates JA Solar "sector perform" with a $7 target, implying 17% downside.

Earnings Season: JA is forecasted to post third-quarter sales of $435 million. The consensus estimate has risen $1.8 million in the past month. JA is projected to deliver adjusted earnings of 32 cents. The consensus has increased by 2 cents in four weeks. JA has an earnings-surprise average of negative 2.1%. It missed the second-quarter earnings consensus by 26%. Its stock fell 8% on the news. It beat the first-quarter consensus by 35% and its stock still dropped, by 7.5%. So, recently, JA is an earnings-season underperformer.

Valuation: JA's stock trades at a forward earnings multiple of 7.2, a book value multiple of 1.8 and a sales multiple of 1.3, 45%, 50% and 58% discounts to industry averages.
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