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Could We See a Short Squeeze Send Solar Shares Higher?

By Joel South and Taylor Muckerman – Feb 12, 2014 at 12:46PM

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Short positions continue to build in industry-leading solar companies, and shareholders could be laughing all the way to the bank.

At best, shorting a stock offers investors a chance to double their money -- but it also unlocks unlimited downside. In today's market, pessimism is flowing into solar stocks with short positions reaching upward of 38% of float in SolarCity (SCTY.DL) and 33% in SunPower (SPWR -1.82%)

SCTY Percent of Float Short Chart

SolarCity is the leading residential solar-leasing company and has performed wonderfully since its IPO in 2013. In fact, in its last earnings release the company deployed 78 MW of residential solar and the number is expected to grow to over 100 MW when the company announces fourth-quarter earnings later this month. 

We will have a better look at SunPower's growth after fourth-quarter earnings are released when the markets close on Feb. 12. One thing is certain, with a utility-scale project in Chile that will afford to sell power in the spot market in addition to reaching capacity in its retail-distribution business, SunPower continues to impress shareholders. 

Interesting enough, the shorts keep borrowing shares outstanding, and if solar companies continue to execute and meet or raise guidance a short squeeze could put considerable upward pressure on solar share prices as short sellers cover their positions. When it comes to SolarCity and SunPower, I would rather be on the side of unlimited potential. 

This segment is from Tuesday's edition of Digging for Value, in which sector analysts Joel South and Taylor Muckerman discuss energy and materials news with host Alison Southwick. The twice-weekly show can be viewed on Tuesdays and Thursdays. It can also be found on Twitter, along with our extended coverage of the energy and materials sectors @TMFEnergy.

Joel South owns shares of SunPower. Taylor Muckerman owns shares of SolarCity. The Motley Fool recommends SolarCity. The Motley Fool owns shares of SolarCity. 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.

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