Is It (Finally) Time To Buy The Solar Industry? - Real Time Insight
April 18 2012 - 5:40AM
Zacks
Although oil prices are firmly above the triple digit mark, many
firms related to the energy industry have not moved higher. The
broad sector, as represented by the popular Energy Select
Sector SPDR (XLE), is
pretty much flat on the year despite a nearly 3.7% gain in the
price of WTI crude over the same time period.
Yet while this is somewhat disappointing to energy-focused
investors, it is nothing compared to the terrible performance of
the solar industry as of late. The two solar ETFs—the Guggenheim
Solar ETF (TAN)
and the Market Vectors Solar Energy ETF
(KWT)—are both down more
than 4% on the year even though oil prices have moved higher.
Additionally, from a one year look, the results are even more
depressing; both funds have lost nearly 70% in the past 52 weeks
alone!
Furthermore, the industry isn’t exactly the best from a Zacks
Rank perspective; of the 17 companies we rank in the solar
industry, only three have a Zacks Rank of two or better. In fact,
five firms have a four or worse while the industry currently ranks
in the bottom 15% from a Zacks Industry Rank perspective.
Nevertheless, despite the gloomy Zacks Ranks and recent
performance, there are some reasons to be bullish on the solar
industry. Higher oil prices do generally make alternative energy
more competitive as the cost differential between fossil fuels and
clean energy shrinks, spurring many to take the plunge on solar
instead.
Also, some of the stocks in these ETFs are becoming deep
values—thanks in large part to the aforementioned losses. The PE
for these funds is below 10 while price to book and price to sales
ratios are both below 1.0, well below the metrics investors are
seeing for other funds in the energy space.
Yet with that being said, I for one am afraid that solar is the
power of the future but that future will never come. People have
called for a bull market move in solar before, and they have been
devastated by the results. I mean take a look at a three year chart
comparing TAN to the broad markets, the energy sector, and crude
oil (as represented by USO)…
Yikes!
Even more troubling is that now investors seem much more focused
on natural gas as a crude oil alternative, seemingly pushing solar
power further down the road yet again despite the intense
competition in the industry and the ever lower price of solar
panels...
What is it going to take to turn solar around? Clearly high oil
prices haven’t been enough to make up for a lack of subsides in the
developed world, so what will be the catalyst to finally move solar
power off of its lows and back as a legitimate alternative power
source?
What do you think? Does solar have further to fall or is the
industry finally a value pick for investors?
Let us know in the comments below!
(For more information on ETFs make sure to check out the
Zacks ETF Center)
To read this article on Zacks.com click here.
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