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

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.

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.  

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.

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Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 24, 2014, at 3:00 PM, kunfu wrote:

    I guess it doesn't hurt none for you to keep pumping only the stocks you own either. Being biased towards your holdings makes your commentary rather bland..

  • Report this Comment On March 24, 2014, at 5:58 PM, ronwiserinvestor wrote:

    Higher performance U.S. made Stion solar modules coupled with higher efficiency SolarEdge inverters with built in web based monitoring plus $0 down solar loans at nearly half the cost of a $0 solar lease will rule 2014.

    Ir's just a matter of time before the marketing of this far better option reaches saturation and the reign of outdated and expensive solar leases and PPAs with Chinese/Philippine/Taiwan manufactured solar modules will be over.

    It's time for American made products to take back the market that they started years ago.

  • Report this Comment On March 24, 2014, at 11:53 PM, TMFFlushDraw wrote:

    @kunfu

    I put my money where my mouth is and my recommendations have done pretty well. SunPower and RGSE have outperformed SCTY and FSLR since the beginning of 2013 and has beaten almost every Chinese solar stock (CSIQ is the exception).

    @ronwiserinvestor

    Stion panels are some of the least efficient on the market and can't compete long-term without major efficiency improvements. 13.8% versus 21.5% for SunPower.

    Travis Hoium

  • Report this Comment On March 25, 2014, at 2:48 AM, ronwiserinvestor wrote:

    Hi Travis

    Yes, that is true, but higher efficiency only means a smaller footprint on your roof. A 327 watt high efficiency solar panel puts out the same amount of power as a 327 watt low efficiency solar panel. Only the size is different.

    Stion, at 92.92% has a higher PTC to STC ratio than most solar panels on the market which according to the California Energy Commission, is more representative of real world performance.

    Stion also offers a lower temperature coefficient, so in the Southern states or in areas with warmer climates, you will harvest more kWh per year than you would with solar modules with a higher temperature coefficient.

    Stion offers a -0.26/degree C rating while modules like SunPower typically offers a -0.30/degree temperature coefficient. Standard silicon modules offer about a -0.45 to -0.48 temperature coefficient. The lower this number the better. In other words the hotter it gets, the poorer a solar panel will perform.

    Stion's CIGS technology also performs better in low light conditions when compared to conventional silicon technology. And of course, being American made doesn't hurt either.

    If Stion were to go public, with their price and performance advantage, I believe they would make a formidable competitor.

  • Report this Comment On March 25, 2014, at 2:15 PM, jargonific wrote:

    Usually can make profit on SPWR but one has to buy it right and note season as to SHORT SELLERS.

    They seem active right now and one page shows a 38.2% short interest as percent of float. That just after one insider exercised 905708 shares.

    What do you see as a good buy in point?

    Are short sellers STILL wrecking havoc on this security?

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