solar energyIs the outlook actually brighter for solar stocks -- or is it just that the sector has been lost for so long in a dark midnight that even the slimmest glimmer of light looks like a new dawn? Such is the crossroad that solar stocks find themselves at as spring of 2011 approaches.

In 2007 -- back when Amy Winehouse was singing Rehab and Juno was a wizard film -- companies making solar modules and panels made up one of the hottest sectors of the stock market. Startup after startup went public and rocketed skyward.

In the summer 2008, crude oil futures neared $150 a barrel and solar manufacturers raced to build more factories. But as the fall brought the financial crisis, solar firms became equity pariahs. High borrowing costs coupled with plunging demand made the sector unpopular. The solar dream went cold.

As the economy bottomed out, the solar sector seemed left behind. Take a look at this chart comparing the TAN (TAN), an exchange-traded fund of solar-powered stocks against the S&P 500. In the fall of 2008, solar stocks fell much harder than the S&P 500 -- despite the latter's heavy weighting in banking stocks.

Solar Stocks vs. S&P 500 stock index

And since then, while the S&P has clawed its way back over the past two years, the TAN has moved sideways. But so far in 2011, things seem to have reversed. The S&P 500 has gained 4%. The TAN has gained 16%, even rising as much as 23% this month.

So, after three years of very mixed fortunes, solar-power looks like it's starting to take off again. Some of the sector's biggest names -- SunPower (SPWRA), First Solar (FSLR), Trina Solar (TSL) and SunTech Power (STP) -- have risen more than 20% so far this year. The tight credit markets on which solar manufacturers rely to fund their new production facilities have eased back open again. And crude oil prices are back above $100 a barrel for the first time since 2008.

Boom and Bust and Boom and Bust

Stocks of companies making solar-power modules and panels have long been volatile. Solar technology is highly cyclical, according to swings in both supply and demand. Rising demand is positive for solar manufacturers, but as time passes companies rush to build new facilities and expand production capacity. If capacity increases too fast relative to demand, prices tumble. In the long run, lower prices are good because they spur new demand. But in the short-term, it can eat into profits.

In that respect, solar modules are a lot like semiconductors. But the demand for solar goods has a complex and often unpredictable relationship with oil demand as well with the willingness of industrialized countries to offer subsidies. The recession that brought oil prices down also forced governments to cut back on alternative-energy subsidies. No wonder, investors grew bearish on the solar sector.

Now, however, optimism is on the rise, thanks to recent earnings of solar companies. SunPower said this week it's seeing more demand that it can meet with its solar-panel manufacturing facilities. Oil prices are heading upward, and no one is sure how far they'll go this summer as emerging economies demand more power (not to mention if the Mideast upheavals spread to other oil-producing nations).

Rising oil prices can lead to investments in solar-energy projects. But even though solar stocks frequently see a lot of speculative investing and can easily get ahead of themselves, profits could be rising at these companies after their dry spell. So, much of the gains could be based on fundamental strength.

Bullish Earnings Reports

For much of the past year, SunPower struggled below $15 a share, a victim of government budget-trimming in Europe, which has historically provided hefty subsidies for alternative energy. SunPower's earnings of $1.36 a share topped estimates of $1.05 a share. Not only is the company responding effectively to Europe's new austerity but it's increasing its sales in the U.S.

On Tuesday, Trina Solar also reported better-than-expected earnings, delivering $1.87 per American Depository Share, well ahead of the Street's forecast of $1.09 per ADS. Several analysts raised their price targets for Trina, with some noting that demand is surprisingly strong at a time when Trina and others are adding production capacity.

All of that follows another bullish earnings report from Yingli Green Energy (YGE), which said last week that revenue grew 66% year-over-year in the quarter. It posted earnings of 57 cents per ADS, ahead of expectations of 44 cents per ADS.

Not all solar companies are enjoying the gains. JA Solar (JASO) said Tuesday its earnings per share tripled to 41 cents, but the stock declined after that figure came in short of the 48 cents analysts had been looking for.

Straightforward? Not Here


These stocks have mostly been so strong that some analysts are suggesting investors take profits if earnings push the shares higher. On Tuesday, Pacific Crest analyst Weston Twigg issued a report saying that First Solar could easily beat the Street's estimates for its fourth-quarter earnings. If it does, Twigg said, investors might want to lock in their profits. First Solar's stock now trades at double its peers' price-earnings ratio of nine. But solar module prices may decline by 20% this year.

Nothing is straightforward in forecasting the solar industry. In the past, analysts have been too bullish at market tops and too bearish when things were just starting to get better. This suggests that the caution on Wall Street about 2011's solar rally may be overdone.

Whether that's true or not, investing in this sector requires a strong stomach -- and maybe some glare-reducing sunglasses.


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Dereck

Major Fraud Alert


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May 29 2011 at 1:06 AM Report abuse rate up rate down Reply
marine1942

Is it true that 88 % of all solar panels are made in China ? Just asking

February 25 2011 at 3:33 PM Report abuse +2 rate up rate down Reply
1 reply to marine1942's comment
Sonny

Not yet, however Trina, a govt sponsored solar panel company in China is growing very rapidly with distributors all over the US.

February 25 2011 at 4:03 PM Report abuse rate up rate down Reply
myfunball

Solar power will not work in the Northeast. It cannot produce enough with less sunshine in many places more clouds then sun. You could not provide enough solar to run my house or anyones in my neighborhood with only several hundred houses. It is ridiculous and when are people going to understand this?

February 25 2011 at 3:21 PM Report abuse +2 rate up rate down Reply
Gumby

kEVIN, YOU HAVE TO UNDERSTAND THAT FIRST SOLAR PRODUCE ENOUGH SOLAR MODULES A YEAR TO BE EQUAL TO AN AVERAGE SIZED COAL POWERED PLANT OR A NUCLEAR PLANT FROM SUNRISE TO SUNSET. THE COAL OR NUCLEAR POWERED PLANT KEEP GOING AFTER SUNSET ALL THE NIGHT AROUND THE OCLOCK. SO FIRST SOLAR HAS TO TRIPLE ITS PROUDCTION FROM TODAY TO EQUAL A COAL POWERED PLANT OR A NUCLEAR POWERED PLANT AROUND THE CLOCK ASSUMING THAT THE SUN SHINE EVERYDAY. wHICH IS NOT THE CASE. SO AGAIN,, FIRST SOLAR HAS TO QUADRUPLE ITS ANNUAL PRODUCTION TO EQUAL THAT TAKING IN THE CLOUDS AND RAINS, ETC. FIRST SOLAR NEED TO DO 10 BILLION WORTH OF SALES ANNUALLY TO EQUAL ONE NEW COAL POWERED PLANT OR A NUCLEAR POWERED PLANT BUILT A YEAR. THEN FIRST SOLAR HAS TO DOUBLE AGAIN TO GET ANTOHER COAL FIRED OR NUCLEAR POWERED PLANT OUT OF COMMISSION. AND SO ON.. WHY? BERCAUWE OF VERY LOW EFFICIENCY IN PHOTOVOLTAICS.. AND NOT TO MENTION SQUARE MILES AND SQUARE MILES THAT WILL BE REQUIRED TO SITE THEM. AND THOUSANDS OF WINDOW WASHERS TO KEEP MODULES CLEAN. this is why ALUMIMNIUM AT 90% EFFICIENCY WILL GO A MUCH LONGER WAY TO MATCH THE FILTHY POLLUTING FOSSIL POWERED PLANTS SCATTERING ALL OVER.. wE CAN HAVE AUTOMATIC SUN TRACKING MECHANISMS TO GUIDE MIRRORS TOWARD THE SHADY BACKSIDES OF OUR HOUSES TO KEEP REFLECTION THROUGH THE LARGE WINDOWS AND SMALL. THE PRICE IS GOING TO BE AROUND A DIME A WATT OR LESS AS COMPARED TO $1-$5 A WATT OF PHOTOVOLTAIC PROUDUCED AND INSTALLED. A SQUARE YARD OF MIRROR CAN DELIVER 800 WATT WORTH OF DIRECT HEAT. AND THEY ARE SMALLER TO WASH CLEAN. VERY POWERFUL.. I AM WITNESS TO MY OWN MIRRORS AND MY JAWS DROPPED TO THE GROUND. MANUFACTURERS CAN DESIGN MUCH BETTER THAN MINE , YET THEY ARE NOT INTERESTED! KEVIN, PLEASE STOP FANTASIZING ABOUT MAKIING MONEY AND START CREATING REAL JOBS!! WE NEED TO DISPLACE OUR OLD HABITUAL PATTERNS OF FOSSIL FUEL CONSUMPTION WITH ALUMINIUM MIRRORS. THIS IS THE FASTEST ROUTE OUT OF OUR ECONOMY MISERY! BIG OIL AND GAS WILL STILL SELL SAME AMOUNT OF FOSSIL FUEL PROUDCTS AS WE HIRE MORE WORKERS WHO WILL CONSUME MORE FOSSIL FUEL OR CHARGE ELECTRICAL CARS, WHATEVER. THE MOST IMPROTANT THING WE MUST DO IS TO DESTROY UNNECESSARY PATTERNS OP FOSSIL FUEL CONSUMPITON LIKE FOR HOME HEATING.. ETC. DO YOU NEED ME TO KEEP EXPLAINING TO THE DETAILS?? YOU KNOW THAT AND YO ARE NOT DUMB!

February 25 2011 at 3:13 PM Report abuse +1 rate up rate down Reply
1 reply to Gumby's comment
Sonny

Solar is a good deal, but hard to cost justify. With the $20,000 rebate from the state of Florida, my system was a no brainer. I produce more electricity than I use and only have spent $4,800 out of pocket! That program ended 6-30-2010. Snooze.......You Looseeeeeeeeeeee

February 25 2011 at 2:59 PM Report abuse +1 rate up rate down Reply
rcalley1

Another important point is the Mybackup unit cost $1500 for 1.8 kw. Normal electric rates depending on region range from $0.06 to 0.10 per kilowatt hour. You can do the math on the Mybackup and see the cost is rediculous

February 25 2011 at 2:35 PM Report abuse +3 rate up rate down Reply
rcalley1

The problem that still exists with the solar panel is the watt density, it is still too small to be effective. Yes, it can run small ventallation system and lighting, but it cannot do the heavy duty jobs. Go and look at "mybackup.com" Here is small cell and heavy battery collector, but the out put is on 1500 to 1800 watts. This would produce enough electricity to run one 120 light bulb for only 5 hours, then it would take 8 to 10 hours of sun light to recharge the system.

February 25 2011 at 2:31 PM Report abuse +3 rate up rate down Reply
orchidad

BlaaBlaaBlaaaa, Show me one green item you can buy that will actually save you money. Every unit being sold, wind power or sun power cost more than you will ever recoupe. If it was such a big thing, than why has the government subsidize these products....Come on, really think about it, the wind dosen't always blow at 12 miles per hour, and the sun isn't at high noon all day long, and the colder days of the year, the suns angle lowers yield...And don't forget that when the panels get dirty, usually in less than 6 months, your yield goes down some more......

February 25 2011 at 2:28 PM Report abuse +5 rate up rate down Reply
Gumby

KEVIN, WAKE UP AND START BELIEVING IN ALUMINIUM OR YOU WILL REGRET IT!!

February 25 2011 at 1:10 PM Report abuse +1 rate up rate down Reply
1 reply to Gumby's comment
Gumby

I AM POSTING THIS SO MANY TIMES ALL OVER AND IT HAS YET TO CATCH ON.. I AM VASTLY OUTNUMBERED BY LIARS !!

February 25 2011 at 1:10 PM Report abuse +1 rate up rate down Reply