First Solar, Inc. (FSLR), SunPower Corporation (SPWR): The Winning Sector That’s Shining Brightest

The recovery of China
At the same time as U.S. solar has benefited from a reversal of downward trends, troubles in China have given way to hope that the emerging market’s industry could survive its current shakeout. Despite big financial problems that have led to partial defaults from Suntech Power Holdings Co., Ltd. (NYSE:STP) and LDK Solar Co., Ltd (NYSE:LDK), shares of other major Chinese producers have performed quite well over the past quarter as investors increasingly become convinced that the industry isn’t doomed entirely to fail.

In particular, some solar companies have made big moves to broaden their sales. Canadian Solar Inc. (NASDAQ:CSIQ) yesterday announced a 91-megawatt supply agreement with Thai company Soleq Solar, showing its ability to move beyond Europe to sell in new markets like Japan and Thailand. With European tariffs looming, solar companies in China need to make moves like this in order to try to bolster profitability and turn weak margins around.

Will solar keep shining?
With such huge gains under their belts, solar stocks might look played out at this point. Yet for perspective, keep in mind that even after last quarter’s rise, the Guggenheim ETF is still down by more than half even from its 2009 lows, after accounting for a 1-for-10 reverse split in early 2012. If the rebirth of solar is real, then the ETF could see much bigger gains in the months and years to come.

Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool has no position in any of the stocks mentioned.

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