Shining A Light On Inexpensive Solar Stocks

As oil prices have continued sliding, plenty of shine has come off alternative stocks and exchange traded funds. The Guggenheim Solar ETF TAN is no exception to that trend. TAN, the largest solar ETF, is down nearly 20 percent over just the past month, a slide that accounts for the bulk of the ETF's 27.1 percent 12-month decline.

Solar stocks have come under pressure this month due to sliding Chinese equity markets and concerns that the world's second-largest economy is slowing more than previously expected. Hong Kong and Chinese stocks combine for over 36 percent of TAN's Those glum performance statistics arguably belie opportunity with solar stocks and TAN.

“Solar stocks are currently trading at bargain-basement prices compared with the broad market. The median trailing P/E of companies in the MAC Solar Index is currently 8.5, which is far below the P/E of 16.8 for the S&P 500 index. The median price-to- book ratio of 1.03 for the MAC Solar Index is well below the 2.53 ratio for the S&P 500. The median price-to-sales ratio of 0.77 for the MAC Solar Index is well below the 1.66 ratio for the S&P 500,” according to MAC Solar Index, the index provider for TAN's underlying benchmark. 

TAN's top 10 holdings include First Solar Inc. FLSR, Elon Musk's SolarCity Corp. SCTY and SunPower Corp. SPWR.

Last week, Barclays said it is “broadly positive on the solar space due to the combination of policy certainty supporting demand and weakness in energy prices providing an attractive valuation entry point.”

Bolstering the long-term case for TAN is that global solar demand is on the rise.

“Global solar demand continues to be very strong with both increasing unit sales and decreasing costs due to technology advances and economies of scale. Global solar growth in 2015 is estimated at +36% y/y by GTM Research, with about 37% growth in China and 29% growth in the U.S.,” said MAC Global Solar Index.

Last month, Congress introduced legislation that includes an extension of the solar investment and wind protection tax credit. Solar stocks still have an oil problem— as in falling oil prices are problematic for the solar industry because inexpensive oil takes some of the shine off alternative fuel sources. Actually, TAN has lagged the United States Oil Fund USO over the past month.
 

“There are now 209,000 people who work in the U.S. solar industry, according to the non-profi Solar Foundation, with 20% growth in solar jobs in the year through Nov 2015. The number of solar jobs is now more than the 185,000 people working in the U.S. oil and gas industry, representing a dramatic shift in energy technology jobs and potentially political clout. Moreover, the U.S. solar industry is just getting started and could add more than 1 million jobs by 2030 and nearly 2 million jobs by 2050, according to a report by NextGen Climate America,” said MAC Solar Index.