Record snowstorms on the eastern seaboard and endless gray skies in New England notwithstanding, solar stocks are shaping up to be a good place to invest—especially for value investors.
Productive global climate change talks in Paris and an extension of solar tax credits here in the U.S. have given solar energy companies some much-needed momentum in recent months. As a result, some solar stocks have started to climb from their October and November bottoms—a bottom that Tim Lutts, Cabot Investing Advice’s president and chief investment strategist, foresaw four months ago.
Here’s what Tim wrote then, in an article titled, “Have Solar Stocks Bottomed?”
“(Low gas prices have) wreaked havoc with solar energy producers, who have found their economic arguments increasingly undercut by falling costs of traditional fuels. As a result, solar stocks have been a great place to lose money over the past couple of years.”
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The proof was in the pudding—and the charts.
-First Solar (FSLR) was down 37% from its 2014 highs
–SolarCity (SCTY) was 47% off its high
–SunPower (SPWR) was 46% off its high
–Canadian Solar (CSIQ) was 57% off its high
–Trina Solar (TSL) was 48% off its high
–Jinko Solar (JKS) was 34% off its high
You get the point. Solar stocks were in trouble, and not showing many signs of life. Still, Tim was optimistic about the sector. Here’s what he wrote next:
“But I do see bottoming patterns forming, not least because most of the panicky sheep have sold out of the sector and now I sense that smart bargain-hunters are slowly moving in.
“Also important: there are a number of younger names in the industry, whose stocks came public in the last year or so, that are less well known and therefore more susceptible to buying campaigns when the market and/or sector turns up.
“I’m watching all of them carefully, and I’m planning to recommend the best solar stocks to my Cabot Stock of the Month readers when the time is ripe.”
Tim wrote that on October 6. Today, almost four full months later, there are still some “panicky sheep” left in the sector—TSL, JKS and especially SCTY continued to plumb new depths before appearing to find a bottom a month later, in early November. However, FSLR—the largest solar stock by market cap—is up 8.1%, while SPWR has climbed 6.6% (all at a time when the S&P 500 has fallen another 3.3%).
Meanwhile, SCTY is actually up 25% from its November bottom.
Oil prices remain in the dumps, affecting the market and global economy as a whole, and solar companies in particular. So there may still be some short-term pain in store for those companies.
But the long-term climate for solar energy producers is improving by the day. The Paris climate talks in December resulted in an unprecedented accord signed by 195 nations to lower greenhouse gas emissions in large part by committing to use alternative energy sources such as solar and wind.
A couple of weeks later, the U.S. government extended an environmental tax credit for solar power installations through at least 2019. The credit amounts to 30% off the cost of the solar panels. The incentive will boost installations at businesses and residences.
So, the political “climate” (no pun intended) is ripe for solar companies—and is likely to grow even riper in the years ahead. Thus, the upward movement we’re starting to see in some of the best solar stocks—namely FSLR and SPWR—is likely the beginning of a very long trend.
Eventually, oil prices will find a bottom, the energy sector will stabilize (at least somewhat), and investors will pour back into solar stocks in droves. When it happens, the price of solar stocks will rise quickly; if you wait too long, you could miss the boat.
To the point: If you’re looking for a few bargains in a major growth industry, it might not be a bad idea to add a solar stock or two to your portfolio. And right now, FSLR and SPWR are among the best solar stocks to buy if you’re looking for early signs of upward momentum.