Finding Some Sun At A Cloudy Time For Solar Stocks, ETFs

This year has not been kind to solar stocks and the relevant exchange-traded funds. The Guggenheim Solar ETF TAN, the largest dedicated solar ETF, is off 5.5 percent over just the past month, bringing its year-to-date loss to nearly 35 percent.

TAN has been stymied on multiple fronts this year. In previous periods of rising oil prices, solar stocks and TAN have participated in some of that upside, but that is not the case this year. Second, short sellers have been voraciously attacking some TAN constituents, a frequent occurrence with this exchange-traded fund, and winning.

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Additionally, TAN's slump deals a blow to the notion that solar stocks perform well when Democrats occupy the White House. Obviously, that has been the case for almost eight years, and Democratic nominee Hillary Clinton could extend that streak to 12 years.

However, there is some good news for TAN and its constituents. At the very least, solar equities are becoming increasingly attractive on valuation.

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“Solar stocks are currently trading at very low valuation levels compared with the broad market. The median forward P/E of companies in the MAC Solar Index is currently 8.7, which is well below the forward P/E of 18.6 for the S&P 500 index,” said MAC Solar Index, the index provider for TAN's underlying benchmark.

There are still headwinds to consider, including but not limited to election year uncertainty and concerns that Chinese solar demand will be outpaced by supply in the latter stages of this year. Should Republican nominee Donald Trump win the White House, it is possible that solar stocks would sell off soon after.

However, TAN has tumbled 90.4 percent since coming to market just a few months after President Obama was sworn into office so the notion that Democrats are good for solar stocks is inaccurate.

Fortunately for TAN and its holdings, there are some bullish factors at play in addition to valuation.

“Recent bullish factors for solar stocks include (1) strong overall world demand for solar with the sector set to grow by at least 20 percent this year [...] (2) the strong prospects for U.S. solar in coming years after Congress in December 2015 approved a 5-year extension of the U.S. solar investment tax credit (ITC), (3) strong demand for solar power worldwide due to the increasingly competitive price of solar versus alternatives and as countries seek to meet their carbon reduction targets under December's Paris COP21 global climate agreement,” added MAC Solar.

Full ratings data available on Benzinga Pro.