NEW YORK (TheStreet) -- The current recovery is about energy, just as the stagflation decade of the 1970s was about energy.
But while the collapse of solar stocks early this decade sent most investors rushing back into easier-to-understand fracking plays, the sector has recovered.
The two exchange-traded funds that track solar energy, the Guggenheim Solar ETF (TAN) and the Market Vectors Solar ETF (KWT), invest globally and are both up more than 100% since May 2012. Specific U.S. stocks that remain in the sector have done even better: First Solar (FSLR - Get Report) is up 344% since May 2012, and SunPower (SPWR), now mostly owned by Total (TOT), the French oil giant, is up about 500%. Since its December 2012 IPO, SolarCity (SCTY) has gained 344%.
The industry leader for gains, however, is SunEdison (SUNE), the former MEMC, which produces silicon wafers, a basic material for polysilicon panel production. Over the last two years its shares have gained more than 1000%, coming back from the dead to their current price around $19.50.First Solar, the longtime bellwether of the group, makes its solar panels from cadmium-telluride, a byproduct of mining. At one point General Electric (GE) seemed poised to enter the business, but last year it backed out and sold its patent rights to First Solar, in exchange for common stock.
Since then First Solar has followed investor fashion. Sales shrank last year, by about 18%, but profits ballooned, to $3.70 per share. The first quarter of 2014, ending in March, saw sales up 25% on a year-over-year basis, and profits were almost twice what they had been. SunPower, which had been a big money-loser in 2012, earned a profit of $95.59 million, or 70 cents a share, in 2013, and another $65.04 million, or 42 cents per share, for the first quarter of 2014. The company's focus is on high-efficiency polysilicon panels, which turn as much as 20% of solar energy striking them into electricity. SolarCity is not a panel producer but an installer of panels. The idea is that by doing solar leases with homeowners and businesses, it creates assets for itself and for bondholders. It is foolish to expect profits from a company whose business is piling up assets, during the piling-up stage, and SolarCity is no exception. In 2013 it actually lost about $1 for every $3 in revenue, and during the first quarter lost $1 for each $4 in revenue. The idea is that its leases will pay off in the form of power over time, just as people who build skyscrapers lose money while they're building but wind up with powerfully performing assets once the skyscrapers are built.