) -- Not a trading session goes by of late without a solar stock, or two, or three, skyrocketing on a shipment raise, new order, or earnings guidance revision upwards.

For Tuesday's version of the solar winners session, it's looking early like two upstart Chinese solar module makers and one U.S. inverter company are the stocks with positive momentum, yet big gains from the pre-market session were quickly moderating for these solar stock plays.

2010 Chinese solar module rally king,

Solarfun Power

( SOLF) has at least one rally left in it, even after surging 60% year-to-date.

Jinko Solar

(JKS) - Get Report

, which was among the biggest winners on Monday in the solar sector, is leading the returns early on Tuesday after announcing another 130 megawatt order from an existing customer.

The Chinese solar module makers are being joined by U.S. solar inverter maker


( SATC), which announced that it had won a contract to supply inverters for a 63 megawatt project in Puerto Rico.

SatCon was up more than 5% in early trading, with Jinko and Solarfun shares higher by between 3% and 4% in early trading.

Solarfun said it had already reached its 2010 year-end target of 360 MW in ingot manufacturing capacity, 400 MW in wire saw capacity, 500 MW of cell capacity and 900 MW in module capacity. The Solarfun target was an increase of 100 MW in cell capacity and 200 MW in module capacity compared to the end of the second quarter of 2010.

Solarfun also announced that it plans to add to the gargantuan capacity being planned for 2011 by solar players, taking cell capacity from 550 MW to 820 MW; wire saw capacity from 400 MW to 572 MW; and ingot capacity from 360 MW to 510 MW. The capacity expansion isn't expected to be completed until the third quarter of 2011.

Stoking the already optimistic outlook from the solar sector companies as they meet this week in Los Angeles at a big solar conference, Peter Xie, CEO and President of Solarfun, commented in the release, "We are optimistic about our prospects in 2011. Our goal is to make Solarfun more fully vertically integrated as we seek to lower our manufacturing costs and become the leading low-cost producer in the market. As our current projections indicate, the expected capital expenditures will be spent on expanding ingot, wafer and cell capacities, which we believe will help improve our cost structure over time."

The comments about reducing cost structure are not to be taken lightly, as they reflect a solar market dynamic that led one analyst to recently downgrade Solarfun to a hold. March Bachman at Auriga Securities took down Solarfun's rating because he believes the bottleneck in solar wafer and cell demand that has led to prices stronger than expected will lead to gross margin erosion for Chinese solar players like Solarfun that have not reached the stage of complete vertical integration. Bachman says the Solarfun best-case scenario is already baked into the Street numbers.

The same issue looms for Jinko Solar, which in recent trading history is as likely to be down 6% the day after being up by 7% as it is to extend a rally over two sessions. Nevertheless, Jinko Solar shares continue to trade near 52-week high levels, and given that it went public this year at $11, its tripling of value remains one of the biggest solar rally stories of the year. Yet, the Auriga analyst's caution about the rally potential based on fundamentals of the solar industry extends to Jinko Solar too.

Bachman recently increased his price target on Jinko to $32 -- shares were at $31.60 on Tuesday morning -- but rates the Chinese solar stock a hold, citing its need to raise capital to expand its capacity next year. Bachman says that Jinko's capacity expansion for 2010 is already baked into the numbers, but for 2011, it is going to take a capital expansion to expand capacity, and that could mean an equity raise. In general, the Auriga analyst believes that Solarfun and Jinko are examples of solar stocks that are reaching the point where the rally potential is outpacing the fundamentals and the existing, and optimistic optimistic Street numbers.

SatCon is the tale of a different tape, among the solar inverted companies that have rallied all year as a byproduct of the high demand in solar leading to impressive growth in inverter sales.

SatCon's Solstice product has been selected for the 63 megawatt CIRO One solar project in Puerto Rico.

The SatCon product, which integrates an inverter and a solar array information and efficiency management system is designed for large-scale solar projects.

As competition has heated up among inverter companies, and there has been more talk of competition from low-cost Asian providers of inverter technology, the U.S. solar inverter companies have been talking up the information management and energy efficiency monitoring aspects of their technology. Converting the energy generated from a solar project, the basic job of the inverter, is not the selling point for inverter companies in making their bullish case for continued growth.

It's not just the solar module companies that face questions about the best-case scenario already being baked into the numbers. Solar inverter king SMA Solar from Germany has said that 2011 remains a wild card, and its outlook has to take into account the prospect of as big a decline in solar as the potential for continued high demand.

--Written by Eric Rosenbaum in New York.

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