All aboard the solar bandwagon! Analysts, trade associations, and now investors are starting to see the promise of solar as more than a crazy environmentalist idea — it’s an economic reality.
Today’s big bounce
The move today is a bit curious because it isn’t logically distributed among solar companies. Usually, when solar stocks jump they all jump. Some may lead and some may lag, but today there are stocks jumping double digits and some not moving at all. Suntech Power, Canadian Solar, and JA Solar haven’t budged despite rivals with essentially the same equipment rising 10%.
Without earnings reports or new industry statistics to point to, it’s hard to say why one stock is up and another isn’t.
The solar short squeeze — or not
It is also curious to note that the moves of solar stocks recently don’t appear to be a short squeeze — at least not yet. SunPower’s short interest has gone up from 4.2 million shares at the end of 2012 to 6.7 million shares today. So, while the stock has gone up 140% this year, investors have actually been adding shares to the market, not taking them away. Usually this addition of shares would cause shares to go down.
Not every solar stock has seen the increase in short interest. First Solar and Power One Inc (NASDAQ:PWER) both have seen a decline in short interest since the first of the year. But, I wouldn’t exactly call their share price jumps short squeezes. These are profitable companies and they’ve risen as investors have bought into solar, meaning short sellers are getting out of the way.
Analysts jump on the bandwagon
Analysts have been rushing to upgrade solar stocks, giving investors confidence to buy in 2013. SunPower was upgraded by Lazard in early January, giving a price target of $11 that already looks low. First Solar has been upgraded by Citigroup, Cantor, and Bank of America/Merrill Lynch. Not everyone is on the bandwagon yet but a few more quarters of fundamental improvement and we will see a shift on Wall Street.
What to do now?
Are solar stocks on a never-ending rise or are we in for a straight-ahead fall? In the short term, I have no idea what will happen because many of these moves don’t make sense on a day-to-day basis. There’s no significant news out about SunPower today, yet the stock is up 19%.
Solar stocks going higher are particularly companies with strong balance sheets and competitive advantages. Sorry, that rules out almost manufacturers in China, which has industry standard products and leans on the government for funding. Trina Solar may be worth watching eventually, but it is still a big risk. In the U.S., SolarCity is also worth keeping an eye on, but I wouldn’t jump in so early in its development.
I would focus on two companies — First Solar and SunPower. To put perspective on how big the opportunity is, I outlined what SunPower would be worth if it traded at similar multiples to high-tech diversified manufacturers. It might shock you that this simple analysis yielded a stock price potential of $16.67-$79.22. Check it out for yourself in the article found here.
I don’t know if First Solar or SunPower will reach the lofty valuations of other high-tech companies, but if their fundamentals continue to improve then investors are in for a long run higher. The opportunity for solar is incredible; Wall Street is just starting to figure it out.
The article Solar Stocks Jump as Wall Street Hops on the Bandwagon originally appeared on Fool.com and is written by Travis Hoium.
Fool contributor Travis Hoium manages an account that owns shares of SunPower. Travis Hoium personally owns shares of SunPower and has the following options: Long Jan 2015 $7 Calls on SunPower, Long Jan 2015 $5 Calls on SunPower, and Long Jan 2015 $15 Calls on SunPower. The Motley Fool owns shares of Power-One.
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