Will The Sun Also Rise For The Solar ETF?

Talking About TAN

TAN holds 28 stocks with an average market value of $9.8 billion, underscoring the point that this is primarily a mid-cap ETF. On that note, TAN is volatile as highlighted by its three-year standard deviation of 32.8 percent.

“Recent bullish factors for solar stocks include (1) continued strong overall world demand for solar with particular new strength coming from India, Latin America, the Middle East, and Southeast Asia,” said MAC Solar Index, the index provider for TAN, in a recent note. “(2) stronger demand for solar power due to the increasingly competitive price of solar versus alternatives as countries seek to meet their carbon-reduction targets under the Paris COP21 global climate agreement, and (3) low valuation levels that indicate that solar stocks are very conservatively priced.”

Six countries are represented in TAN's lineup, but the U.S. and China combine for over 70 percent of the ETF's geographic weight. The ETF's top 10 holdings, which include First Solar, Inc. FSLR, combine for over 61 percent of TAN's lineup.

The Appeal Of Solar

As has been previously noted, solar stocks are inexpensive relative to the broader market and even compared to the traditional energy sector, which also trades at a discount to its long-term averages.

“Solar stocks are currently trading at very low valuation levels compared with the broad market.” said MAC Solar Index. “The median forward P/E of companies in the MAC Solar Index is currently 11.9, which is well below the forward P/E of 18.1 for the S&P 500 index. In addition, the median price-to-book ratio of 1.19 for the companies in the MAC Solar Index is well below the 3.04 ratio for the S&P 500 and the median price-to-sales ratio of 0.98 for the MAC Solar Index is well below the 2.05 ratio for the S&P 500.”

Politics linger, but investors should remember TAN did not perform well at all during former President Barack Obama's time in the White House and President Donald Trump may not be the obstacle to solar stocks' success some investors perceive him to be.

“Even if the Trump administration somehow made the entire U.S. solar market disappear overnight, the global solar industry would see a one-time drop of 18 percent and would then start to grow again by its usual rate of about 15–20 percent,” said MAC Solar.