For years, solar investment has been viewed warily by the markets, as negative comparisons to more traditional energy sectors led to a view that solar stock was overpriced, unpredictably volatile and growing too slowly.
Recently, though, that viewpoint appears to have been changing and several major fund managers are placing their faith in solar shares as a major part of their portfolios. Despite a wide range of reasons for this trend, falling costs and greater consolidation are the most cited causes of the new wave of positivity.
Of course, the point where the solar industry really challenges oil and gas on the stock market is still some way in the future. The recent Bloomberg New Energy Finance report highlighted the need for around $5.5 trillion to bring the renewable energy sector to the point where it might rival traditional resources. Major solar companies on US markets have a combined market cap of over $30 billion: Exxon Mobil alone is worth over $400 billion.
But the diminutive size of the industry should not put off investors looking for returns that are sustainable both economically and ecologically. And with major fund managers publicly backing the sector, is now the time to really get behind solar as a means for investment?
The largest solar business on the US market, appropriately, is First Solar. First Solar’s positive predictions for growth led to a fillip for its share price back in March, up to a level not seen for several years. Despite this strong performance, First Solar’s price is not too inflated, with the stock currently trading at around 18 times its earnings: slightly under that for its index, the S&P 500.
That said, the business has not grown on the gains seen earlier in the year, and is rated as a ‘Hold’ by the majority of brokers listed on IG’s spread betting platform. That may be because of the lingering negative view of solar stocks: but major fund managers have been tending to place their investment elsewhere.
One company that has been benefiting from fund investment is SolarCity, the residential installer firm still most famous for the involvement of Elon Musk as its chairman and major shareholder. The firm has seen a public endorsement from Cupps Capital Management after its decision to purchase Silevo, a manufacturer of solar panels.
The purchase could present a big win for SolarCity as Silevo are capable of making panels which are up to 20% more efficient than conventional ones. That doesn’t make it the market leader, but Elon Musk’s planned 10,000 watt factory could well do: and in doing so significantly reduce SolarCity’s cost of installation.
The real winners from the renewed interest in solar, though, is SunEdison. The silicon wafer manufacturer has seen some impressive growth over past year, rising around 200% to its current value of $5.6 billion. That has seen the brand come in for major interest from the $1.5 billion Pioneer fund, and the Royce Opportunity Fund: now the top investor in the business. Brokers still rate the company highly, despite its current lack of profit, with 14 out of 17 brokers rating it a ‘Buy’ or ‘Strong Buy’.
There may be a positive feeling surrounding solar stocks at the moment, but it is still a fragile market and needs a sustained period of good news in order to really become beloved by traders. Clearly, several industry experts believe that the time could be ripe for the industry to heat up: only time will tell if they are correct.
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[This post, written by Patrick Foot, has been generously supported by IG Markets Limited. Image: Saginaw Future Inc.]