Why Today's Solar Sell-Off Is No Reason to Panic

Solar stocks are down big today but the reason may simply be profit taking on Wall Street.

Mar 24, 2014 at 2:40PM

Solar stocks are taking it on the chin today as nearly every stock in the industry is down big, some nearly 10%.

SolarCity (NASDAQ:SCTY) continues last week's slide and is the biggest loser today, falling more than 8% as I write. Competitor SunPower (NASDAQ:SPWR) is also down nearly 5% despite an analyst upgrade today. Before you panic, let's take a look at what's going on today and long term in solar.

Spwr Carport

A SunPower carport, which provides shade and electric energy. Image courtesy of SunPower.

Back to reality for solar stocks
SolarCity has been losing ground on the market for nearly a month and is 32% off its all-time high. As I highlighted last week, I think the stock ran too far, too fast and investors didn't truly understand what shifts in the solar industry might mean for SolarCity's high-margin leasing business.

But this isn't a day to panic and a correction in SolarCity's stock to a more reasonable valuation isn't a bad thing for the company long term. As the stock is falling, expectations are coming more in line with reality and giving a buying opportunity for long-term investors.


A SolarCity distributed solar project, which are becoming more economical nationwide. Image courtesy of SolarCity.

SolarCity is still expecting to install between 475 MW and 525 MW of solar this year, up nearly 90% from a year ago. It may not generate $2 per watt in retained value long term, but it's now cash flow positive and has a world of opportunity in front of it. Shares may fall further, and if they do, it'll be a buying opportunity, not a reason to think the company is in trouble.

Today is really more of a trading reaction than a fundamental flaw with SolarCity and solar in general. Momentum traders loved SolarCity and anything involving Elon Musk, but they'll sell quickly when it looks like momentum has ended. That's likely the case with SolarCity, which can lead to volatility and a lower stock price but doesn't change the company's dominant position in residential solar.

Even good news can't help solar
Today, not even good news could help solar stocks. SunPower was upgraded by Baird this morning to an outperform rating and given a $42 price target, which can often lead a stock to pop. But the sell-off has overtaken that news and investors seem to be looking past the fact that one of the best names in solar is trading at just 20 times trailing earnings.  

Fslr Project Image

First Solar utility scale installation. Utility solar is still the largest segment of the market and SunPower and First Solar are leaders in the segment. Image courtesy of First Solar.

In other good news, ReneSola (NYSE:SOL) reported a fourth-quarter profit of $800,000 and said shipments will jump again this year from 1.73 GW to between 2.3 and 2.5 GW. ReneSola is the latest Chinese manufacturer to report a profit and margins are now approaching sustainable levels.

On an industry level, Solarbuzz said today that it expects 100 GW in annual solar deployments in 2018, up from 37 GW in 2013. The future of the solar industry is phenomenal, but as we've seen today, it can be a bumpy ride.  

How to invest in solar now
Downstream solar continues to be a favorite of investors today because it's lower risk than owning panel manufacturers. Investors who are looking for lower risk in their investment should look at First Solar (NASDAQ:FSLR) and RGS Energy (NASDAQ:RGSE) as companies with great downstream exposure. First Solar is the steady utility scale company with the great balance sheet and RGS Energy is the small company with huge upside in residential solar.

My favorite pick is still SunPower, which not only has downstream exposure but also makes the most efficient panels in the industry, giving it a strategic advantage as the industry grows. It doesn't hurt that SunPower is profitable, sold out of panels this year, and is building a new plant with another major expansion expected this year.

These companies combine different amounts of risk and reward, giving a few great options for investors who are wanting to jump on solar stocks during today's sell-off.

Six stock picks poised for incredible growth
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Travis Hoium manages an account that owns shares of Real Goods Solar and SunPower. He personally owns shares of SunPower and has the following options: long January 2015 $5 calls, long January 2015 $7 calls, long January 2015 $15 calls, long January 2015 $25 calls, and long January 2015 $40 calls. The Motley Fool recommends and owns shares of SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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