NEW YORK ( TheStreet) -- It's time for a relief rally in solar stocks.

Of course, it's always anyone's guess as to how long a relief rally in solar will last, though the Street analysts believe there are some encouraging signs that in this case, a relief rally in solar stocks could present some trading opportunities at least until after the upcoming earnings reports, and potentially until the first quarter of 2011.

Trina Solar ( TSL) and Solarfun Power ( SOLF) were leading returns among solar stocks on Wednesday at midday. Trina was up by close to 6% and Solarfun was up 9% for the biggest returns on the day.

The newest Chinese solar module competitor, Jinko Solar ( JKS), was up about 6% also. Jinko had been trading below its IPO price of $11, and hit its highest share price yet intraday on Wednesday, at $11.49.

It wasn't a surprise to see these Chinese solar stocks pacing the relief rally in solar, as two notable analyst reports came out on Wednesday morning indicating that it was time to look at these solar stocks again. One of the analysts said it was a good sign that the Chinese solar stocks reacted positively, as the worst sign of a market that doesn't want to touch solar stocks is when bullish calls by analysts get ignored.

Many bullish solar analysts have been reluctant to recommend beaten down solar shares throughout the euro slide of the past few months. Even at multiples well below typical 10x earnings for solar stocks, many solar analysts said it was hands off until the euro stabilized.

Now the euro stabilization -- it was trading above $1.26 on Wednesday -- has given the Street more confidence in solar stocks. Just a month ago, as the euro slide worsened and sovereign debt fears across Europe sank the markets, the Street expectation for solar stocks was a euro in the range of $1.20, and that pushed down Street models on solar stocks to levels that might not be conservative.

In effect, the sensible Street reaction to the euro slide, due to the currency's outsize impact for a solar sector that derives a majority of its revenue from Europe, has created some upside in solar stocks. The euro has recovered by about 3% in June, though it is down 7% for the second quarter, according to Wells Fargo research.

Collins Stewart analyst Dan Ries put out a research note on Wednesday upping numbers on Trina Solar, and pointing to the stabilization of the euro between a range of $1.22 and $1.26.

Yet it's not just the foreign exchange worse fears that have subsided. The Collins Stewart analyst also noted that solar demand remains strong, even in a declining subsidy environment. On Tuesday, German solar inverter company SMA raised is sales forecast -- solar inverter sales are often viewed as the best gauge of solar demand.

"We do not believe these strengths are being reflected in the share prices of solar companies and believe 2Q10 results may lead to a rally in the names," the Collins Stewart analyst wrote.

Collins Stewart raised its 2010 earnings forecast for Trina by four cents, to $2.30, and its 2011 earnings was raised by 65 cents to $2.90. Collins Stewart also upped its Trina price target to $29 from $27.

The bullish sentiment -- and willingness of analysts to start recommending solar stocks again -- was also highlighted in a Wednesday note from Wells Fargo analyst Sam Dubinsky, recommending Solarfun Power.

The Wells Fargo analyst presented the view that the recent slide in solar stocks has presented, if nothing more, some breathing room for investors.

It's an important distinction to make with a sector as volatile as solar. The Wells Fargo analyst thinks the oversupply situation -- or at least an inventory correction -- is likely in 2011, but that doesn't mean there isn't opportunity in solar stocks right now.

There has been growing consensus around the idea that the fears of a second half 2010 decline in solar triggered by the subsidy reductions in Germany, and Europe more generally, has been pushed back to 2011 as a major risk issue.

There will be subsidy reductions in Germany, as well as Italy in 2011, but with solar stocks trading at depressed levels, investors can trade these names ahead of any 2011 fallout.

It's the typical mini-cycle in solar. The stocks are driven down below what sector fundamentals might imply, however, with a major risk to pricing power still out on the 2011 horizon, the profit opportunity of a solar relief rally may come and go before that risk ever surfaces.

"Trading space has opened up," Wells Fargo's Dubinsky said.

This doesn't mean that by the end of the first quarter 2011, Chinese solar stocks have to be higher than their current share price, but it implies that between now and then, there will be opportunity to profit in the stocks regardless of the severity of a 2011 oversupply.

Though subsidy risk and volatile foreign exchange will likely cap solar multiples near-term, with Solarfun trading at 6x/7x 2010/2011 earnings per share estimates, it's not hard to be positive on shares heading into earnings, the Wells Fargo analyst argues.

"Investors don't want to pay as much ahead of subsidy cuts, and don't want to highly value companies on peak earnings, but for me, if you can buy at five to seven times earnings, the risk/reward is still there, it's not expensive," Dubinsky said.

Wells Fargo raised its Solarfun earnings estimates for 2010 and 2011 to $1.24/$1.10, up from a prior 96 cent/93 cent split, and consensus at $1.04/91 cents.

All the solar stocks were rallying on Wednesday, buoyed by the broad equity markets rally and the bullish calls by solar analysts that had been reluctant to recommend stocks with the foreign exchange uncertainty. The consensus around a much better second half the previous expectations was also evident in news from Germany mentioned in an Oppenheimer & Co. report.

First Solar was up close to 4% in Wednesday trading at midday. Oppenheimer & Co. put out a research note saying that the announcement from Phoenix Solar that its 2010 revenue would exceed previous expectations would be a boon to First Solar in the critical German marketplace. Phoenix Solar buys 50% of its panels from thin film suppliers, with First Solar receiving the largest share of those orders, Oppenheimer stated in its research note. The Oppenheimer report alluded to the upward revision in sales guidance from the German inverter company SMA also.

Chinese solar module stocks were rallying as a group. Yingli Green Energy ( YGE) and Suntech Power ( STP) were both up by more than 3%.

"You can try to take advantage of stocks trading at cheap multiples, or wait until first half of 2011, and that's OK, too, but now might be time to trade it, if you look at how solar stocks have traded in previous mini-cycles," the Wells Fargo solar analyst Dubinsky said.

-- Written by Eric Rosenbaum from New York.


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