There could be several reasons why demand for clean energy is increasing. There is the Fukushima Reactor story that reads like a Sci-Fi/Horror script. There are prices at the gas pump on a seemingly constant upwards trajectory. And there is even a crazy group of people that think we should try to save the planet for future generations to enjoy. As a result, electric cars, solar panels and wind turbines are here and they’re not going anywhere anytime soon.
I do not know how much attention you have been paying to solar stocks but the sun is certainly shining. Last year many of these stocks doubled with others up nearly 10-fold. Looking in the rearview mirror is no way to make money in the market though. Usually looking behind you just leads to frustration or a false sense of confidence and both sides of that coin are losers. Let’s look forward to sunshine and I’m not saying that just because it’s February in Chicago.
National Incentive Programs
Sharp Corp in Japan just reported their solar business returned to profit in the third quarter. Revenue nearly doubled for them. A lot of this has to do with Japan’s incentive program for clean energy. Here in the US incentives include federal tax credits and state by state provisions. The Department of Energy at one time even had a loan guarantee program which backstopped over $16 billion in loans. As a result, new investment in clean energy has ballooned from about $10 billion a quarter in 2004 to nearly $60 billion in Q4 of 2013.
The US and China are at the center of the solar story. Last year Chinese demand was 12.1 GW in the face of 21.3 GW of production where the US demand of 3.9 GW surpassed US supply of 3.3 GW. This helps to explain Chinese solar companies are attacking the US market by undercutting US manufactures on pricing. This helped push solar to the forefront of the trade war. We already have the headlines surrounding accounting practices of Chinese solar stocks, and now we can add an International Trade Commission decision on a protective US tariff due on Valentine’s Day.
There are a few main players in the solar market with stocks that are publicly traded. The solar industry hit my radar when I saw a Zacks Industry Rank in the top 3% of all 265 industries we follow. First we’ll take a look at installer SolarCity (SCTY - Snapshot Report). The company offers solar power, energy efficiency monitoring and maintenance services to homeowners, businesses and government organizations here in the US. Even though earnings have been revised downward for 2015 the stock has maintained a Zacks #2 Rank. From a technical perspective SCTY is testing the 25x5 SMA which is great because at the same time the Stochastics are relatively oversold. Stochastic levels below 50 are oversold with levels below 20 extremely oversold. So a bullish cross, which may be happening today or Monday, would trigger a buy. Even better is we could put a relatively tight stop loss just below the 25x5 near the latest swing low of $65.61. There is still some downside risk here given the pullback from $80 has not produced many higher highs versus the previous day on the way down here to $70, and until we see a bullish Stochastic with the stock above the 25x5 I would not buy.
Canadian Solar (CSIQ - Analyst Report) looks best from a pure technical perspective, backed by good fundamentals with a Zacks #1 Rank although the valuations are a bit out of hand. Rather than being an installer like SCTY, Canadian Solar is a solar module producer that offers ingots, wafers, solar cells, solar modules and other solar applications for on-grid and off-grid use. Here we already have exactly what we were looking for from SCTY stock, a bullish Stochastic cross in oversold territory with the stock retesting the 25x5 SMA. This stock screams “Momentum” like the Seahawks defense on Super Bowl Sunday.
Sunpower Corp (SPWR - Analyst Report) designs and manufactures silicon solar cells and panels based on an all-back contact sell design. The cells generate electricity for residential, commercial and remote power applications. A quick look at the Price and Consensus chart helps give an idea why this stock carries a Zacks #2 Rank.
The chart has been a bit choppy and range-bound since October’s break out above $28.15. Retests of this level have proved to be profitable prices to peck at. It does seem that price stalls near the $35 level. There has just been a bullish Stochastic cross but with the stock trading below the 25x5 SMA it does not mean much in the way of reestablishing the longer term upwards trend. With a stock like this I would be more patient, waiting for a pullback again to $28 or even better a breakout above $35 followed by a pullback to the 25x5 coupled with a trigger from the Stochastics.