In following up on our conviction from our yearly outlook that solar stocks would gain at least 30 percent this year, we note that they are already halfway towards that goal and also leading compared to wind.
This week, UBS was out downgrading several wind manufacturers as the investment bank does not see any improvements in fundamentals, with European wind manufacturers experiencing tough competition from Chinese producers while simultaneously sales are stuck in the U.S. and Europe. The downgrades have ignited a decline in the First Trust Global Wind Energy Fund which reflects valuations of wind power related stocks.
Pointing towards our arguments from the yearly outlook, wind power shares are still at elevated levels compared to the gloomy outlook due to the industry’s competition and pricing situation. In the meantime, many solar companies are still riding on a wave of demand for this rapidly growing renewable energy source. Many analysts were worried in 2010 that the declining subsidies would hurt the industry, but as we pointed out all solar companies forecasted higher demand.
Analysts saw vanishing subsidies as a leading indicator of falling demand but one is left wondering if the declining subsidies are instead a reaction from policy makers that the industry is gradually moving towards grid parity because of high demand (so it is actually inverse of what most analysts thought) which eventually will disconnect the industry from government grants and subsidies.
Solar stocks defined as the Guggenheim Solar Energy Index ETF is up slightly more than 15 percent this year despite flirting with 20 percent gains midway through February and we expect solar stocks will meet our forecast of at least 30 percent return in 2011; that represents a minimum 15 percent gain from here.
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