Investing In Solar: Are These Solar Stocks Feeling The Heat Yet?

Chris Lau, Kapitall: Solar stocks rise and fall with the markets. But can investing in solar add a little shine to your portfolio?

Given the massive ups and downs in solar energy stocks over the last few years, it is hard for investors to believe things may be different this time. The solar energy sector previously looked to be in an unsustainable bubble.

[Read more from Kapitall about investing in solar: Should Value Investors Warm Up to These Solar Stocks?]

But generous and abundant subsidies, high demand, and high margins invited firms to supply more. When prices dropped for solar panels, weak players filed for bankruptcy and the lower supply helped stabilize the industry.

In the US, solar power generation is becoming a more significant source of energy. Coal and natural gas sources now need to compete with solar power, which may help explain why utility stocks are poor performers this year.

Investing ideas

SolarCity ( SCTY ) is on a tear. Shares rose 25% on the week, closing recently at $47.18 and not far from a high of $52.77 reached in May of this year. The company’s latest forecast is only slightly better than previous expectations, so should investors be considering SolarCity now or waiting for a pullback?

Only Trina Solar ( TSL ) is outshining SolarCity in the short-term. In the one year period, Trina and SolarCity are up more than two-fold:

Click on the interactive chart to see data over time.

Trina may be up because the Chinese government is giving a 50% value-added tax rebate to solar manufacturers for the next two years. China is also imposing a tariff of just 6.5% for most of the polysilicon suppliers coming from the US.

The lighter tariff suggests that trade between the US and China will not be hurt as badly as previously thought.

And SolarCity is demonstrating that demand for solar panels is strong in the US. This could benefit other companies like First Solar ( FSLR ) too. In the second quarter of this year, utility-scale solar power demand rose 42% from the previous quarter, which is good news for stocks like First Solar.

Higher capacity

SolarCity deployed 78 megawatts (MW) of capacity in its third quarter. This is well-above the previous guidance of 70MW – 77MW. Energy contracts were one-third higher compared to the previous quarter.  And the firm has a healthy customer base of 82,235, with $1.737 billion in contracted payments remaining as of the end of September.

Bullishness for solar energy began in the summer and could continue. Short float for some solar stocks is high, ranging between 11% and 16.7%. As bears cover their short position, any more good news could potentially fuel shares higher.

 

(Written by Chris Lau, a Kapitall Writer. All data sourced from Finviz.)

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