Solar Investing: Solar’s Up Huge… What’s Going On?

| January 12, 2012 | 0 Comments

Alternative energy investors are keenly aware that 2011 was a disaster for solar manufacturers.  A global solar cell supply glut sent panel prices plunging.  As a result, profit margins at the world’s top solar cell makers dropped like a stone.

Not surprisingly, investors decreased their exposure to solar stocks in a big way.  Nearly every stock in the industry was taken out to the woodshed over the past eight months.

But now it looks like the tide is turning…

Yesterday was a huge day for solar stocks.  Here’s a quick rundown of a few big solar movers…

  • JA Solar (JASO) – up 35%
  • JinkoSolar (JKS) – up 32%
  • Trina Solar (TSL) – up 29%
  • Suntech Power (STP) – up 27%

Why were these names up so much yesterday?

A widely watched Deutsche Bank analyst said solar demand may improve more than expected in 2012.

What’s more, one of the most bearish analysts on the solar industry, Axiom Capital’s Gordon Johnson, changed his tune yesterday.

He wrote to clients that he was removing a sell rating on five big name solar stocks.  First Solar (FSLR), Yingli Green Energy (YGE), Trina Solar (TSL), Suntech Power (STP) and Power-One (PWER) rallied hard on the news.  Short sellers ran for the exits like rappers at a Reba McEntire concert.

But there’s more good news…

It appears solar cell pricing is stabilizing in recent weeks… and that’s a huge deal.  It means the solar cell supply glut is starting to wear off.

As many of you know, I’ve made bullish calls on the solar industry in the past.  In my opinion, the long-term prospects for this industry are huge.  I’ll also admit, the short-term pricing issues caused more damage to solar stocks than I thought possible.

But notice how I’m calling out a distinct difference between short-term industry road bumps and long-term industry potential.

I pointed this same fact out to Energy Investor subscribers in September 2011.  In that issue, I was talking about a deeply undervalued Chinese solar heavyweight.

I wrote…

“Solar industry analysts expect the supply glut to start reversing in early 2012 as Japan, Australia, India, and South Korea heat up their solar programs.  (XX) stated in a Q2 earnings call they’re exploring growth opportunities in all of these markets.”

I went on to say…

“The good news is, these margin issues are pushing the stock down to bargain basement levels.  And when solar cell prices stabilize on growing demand from Asian countries, (XX) margins should stabilize as well.

When that happens, investors should rush back into (XX) shares…”

The stock I talked about in that issue is now up nearly 30% from our buy price.  Of course, I’m not mentioning which stock because it still has enormous upside potential.  These kinds of profit ideas are reserved for Energy Investor subscribers.

Why am I mentioning this?

I’ve caught plenty of flack for being a believer in the solar industry over the past six months.  Of course, it’s easy for solar skeptics to toot their horn when most stocks in the industry were down 50% or more last year.

But don’t let 2011’s industry headwinds fool you…

What we saw was a short-term pothole on the long-term alternative energy super highway.  And now, many of the stocks in the solar industry are insanely undervalued because of it.

Keep in mind, most solar companies are still likely to report horrific Q4 2011 earnings in coming weeks.  However, I think that news has been priced into the market many times over at this point.

If you’re not long solar at these levels, you’ll kick yourself in years to come.

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Category: Commodities

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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