NEW YORK ( TheStreet) -- The fight between the solar bulls and solar bears picked up right where it left off on Monday morning, with the bulls back on the offensive.

Bullish calls from Piper Jaffray and Collins Stewart are among Monday-morning events sending shares of solar up broadly for the first time in two weeks.

Last Friday capped a two-week selloff in solar after German officials hinted that the country's proposed cuts to its solar feed-in-tariffs would be larger and implemented sooner than previously expected. On Friday, FBR Capital Markets published research arguing that average sales price, revenue and earnings hits in solar could reach as high as 25% due to Germany's proposed solar tariff cuts.

Solar shares had reached a collective high on Jan. 11, shortly before the news out of Germany broke, sending solar shares into double-digit percentage declines through last Friday.

The question now for investors is whether the selloff in solar was overdone, and it is time to buy again, or whether the worst case scenario proposed by FBR Capital and others will come true, and investors should continue to be wary of solar shares.

The recent selloff in solar still could not compare to the run-up that some of these shares, particularly Chinese solar shares, had been on in the final months of 2009. Canadian Solar ( CSIQ - Get Report) and Solarfun Power ( SOLF) are still up just under 50% since Nov. 1.

Yingli Green Energy ( YGE) is up 9% since Nov. 1, and Trina Solar ( TSL) is up 29% since Nov. 1, according to Collins Stewart.

So was the recent solar selloff a healthy correction in overheated solar stocks? Not according to investors on Monday morning. Investors were saying it was time to buy solar again.

Profit-taking by short sellers may be reaching exhaustion, for one.

Still, after the bullish calls from Piper Jaffray and Collins Stewart on Chinese solar stocks including Canadian Solar ( CSIQ - Get Report), JA Solar ( JASO) and Solarfun Power ( SOLF), the solar sector was up broadly.

Investors may want to keep in mind that when news of the German feed-in tariffs first broke, Piper Jaffray initially claimed that Reuters was wrong. At least as far the proposal from Germany's environment minister, the original Reuters report turned out to be relatively on the money, save the fact that Germany also proposed a 25% cut in farm-based solar projects specifically.

Collins Stewart has also been one of the most bullish research firms on solar -- in December it raised a price target on Trina to $75 and on Canadian Solar to $40. Now, Collins Stewart has taken both of those price targets back down considerably, but reiterated buy ratings.

So while solar bulls deserve their argument in the sun, bull arguments for solar stocks at a moment of sector weakness should maybe be taken with a grain of silicon.

Solarfun Power, which was raised to buy at Collins Stewart and received a price target increase to $10, was up the most on Monday morning, with a gain of close to 10%. SolarFun closed trading last Friday at $7.

Yingli was up close to 4%, after its buy rating from Piper Jaffray and Collins Stewart was reiterated. Piper cut its price target to $16, while Collins Stewart cut its price target on Yingli to $15. Yingli closed trading last Friday at $12.63.

Trina Solar was up 3% on Monday morning after both Piper and Collins Stewart reiterated buys, while reducing price targets. Collins Stewart, which just a little over one month ago had placed the $75 price target on Trina -- or $37.30 since Trina has since split its stock -- today reduced that target to $31, but reiterated a buy rating. Piper reiterated a buy on Trina while reducing its price target to $27.

JA Solar, China Sunergy ( CSNU), Canadian Solar, ReneSola ( SOL - Get Report) and Suntech Power ( STP) were all up on Monday morning between 2% and 3%, for the first time in two weeks.

Canadian Solar, which had received the price hike to $40 in December from Collins Stewart, now has a price target of $32.

The overall message from Collins Stewart and Piper Jaffray was the same on Monday morning as it had been in previous research, though the solar bulls did concede on a negative impact from Germany. Both research firms issued solar research notes saying that the German solar feed-in tariff cuts are bigger and coming sooner than expected, but the net result will be a gaining of market share by the low-cost Asian players, like Yingli, Trina, Solarfun, and Canadian Solar, and U.S.-based First Solar.

Even Suntech, which is still a neutral at Piper Jaffray and sell at Collins Stewart seemed to benefit from the general market turn back in favor of solar, up almost 2.5%.

Notably, only First Solar was down on Monday morning , after a $29 price target reduction from Piper Jaffray to $127. Collins Stewart reduced its price target on First Solar to $148 from $160, but both research firms reiterated buy ratings on First Solar, which closed last Friday at a little over $112.

It's still a long climb back to where these solar shares were just two weeks ago, but at least on Monday the solar bulls were charging ahead.

However, the argument that the Chinese will gain market share on higher cost solar companies has been the argument for a long time already -- it was the argument that led to the big stock run ups in Chinese solar stocks throughout the second half of 2009.

Gordon Johnson, of Hapoalim Securities, is among the most bearish of solar analysts, and he cautions investors that the Chinese solar stocks have already been driven up by potential factors that have not come to pass, and so from his perspective, it is curious to be buying them at a moment of sector weakness. First, the solar shares were driven higher by the idea that they would benefit from a feed-in tariff in China, which still has not been implemented. Second, the Chinese solar shares also benefited from an expected pricing increase in the first quarter of 2010, also not likely to happen given the German outlook.

"There has been so much upside already priced into these solar stocks, and now they are saying 'Buy on weakness,'" Johnson argued, adding, "the previous data points the bulls have told people to buy on have not happened."

Hapoalim's Johnson said the argument that the Chinese solar players will gain market share as their low cost structure gives them an advantage in a declining average sales price environment is correct -- still, he contends that everyone already knew this and had already price this into the shares. "Q-Cells has already lost most of the market share they are going to lose," Johnson said, adding, "they've already been outsourcing modules to China."

What's more, with the cuts in Germany, solar earnings will not grow as expected, so Johnson argues these solar shares should be lower multiple stocks, regardless of the low-cost advantage of the Chinese solar companies. "The Street expected the Chinese solar players to earn a lot more, so the low cost advantage is less important than reduced earnings potential," Johnson said.

Hapoalim's Johnson also sees an ominous sign in recent solar capacity projections for 2010.

The Street is estimating between 4.6 gigawatts (GW) of capacity from the top Chinese solar players, but industry data provided to Hapoalim Securities that also includes capacity projections for Chinese private solar companies Ningbo Solar, Changzhou Eging, CEEG, Suzhou AiDe, Tianwei and ET Solar would actually put solar capacity from China at between 6.3 GW and 6.8 GW.

"If the Street is as much as 2 GW off in its capacity projections for the Chinese solar players in 2010, that could bring down earnings even further," Johnson says.

An old African folk saying on war has it that when two elephants fight in the grass, it is the grass that suffers. Let's hope that when it is the solar bulls and bears pitted against each other, solar investors are not mowed over.

-- Reported by Eric Rosenbaum in New York.


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