The Sun Also Rises for Solar Stocks

Stocks in the solar space are getting burned. On Wednesday, shares of the
largest U.S. solar cell company, First Solar (NASDAQ: FSLR ), took a beating ,
crumbling more than 21% on a lowered 2012 outlook. The stock continued its
descent Thursday, down 6% by the end of the trading session. As you might
expect, stocks throughout the solar sector are getting pummeled in sympathy. The
Guggenheim Solar ETF (NYSE: TAN ) a fund comprised of the biggest players in
the sector such as MEMC Electronic Materials (NYSE: WFR ), Suntech Power
Holdings (NYSE: STP ), Trina Solar (NYSE: TSL ), Yingli Green Energy (NYSE: YGE
) and of course, First Solar is down more than 12% during the past five trading
sessions. The latest move lower in solar stocks shows just how thoroughly the
bear has eclipsed the sector. But remember that the sun also rises, even in
beaten-up sectors. Sometimes, the more severe a selloff, the bigger the buying
opportunity is for investors willing to take a chance on the next ray of light.
But why should investors consider solar stocks right now, given their dismal
performance in 2011? The answer actually is as simple as rock-bottom prices and
a lot of potential upside. Click to Enlarge As you can see by the chart here of
TAN, solar stocks have fallen to a new 52-week low. And at the current price,
value money could start pouring in. Back in late November, I said investors
should look at the selloff in the sector as a potential buying opportunity . I
also said that calling a precise bottom was a risky endeavor. Now that solar
stocks have given up even more of their value, the possibility that we're
close to a bottom in the sector is even greater. Of course, there's more than
just a bottom-fishing mentality here that could propel solar shares higher. Lost
among the headlines of lowered outlooks and plunging stock values was a
record-setting third quarter for U.S. solar installations. The U.S. installed
449 megawatts of PV during Q3 , more than in all of 2009. Installations in the
fourth quarter are predicted to be an even bigger, according to a recent report
by the Solar Energy Industries Association and clean-tech information firm GTM
Research. Another industry analyst predicting solar growth is Richard Keiser of
Keiser Analytics. He's calling for a substantive acceleration in solar PV
installations in the U.S. during the next five years. According to Keiser, the
driving force for solar will be a classic combination of decreased solar
installation costs and increased solar demand. Even famed investor Warren
Buffett wants his day in the sun. His MidAmerican Energy Holdings, a Berkshire
Hathaway (NYSE: BRK.A , BRK.B ) company, is now venturing heavily into solar.
MidAmerican said in a press release that it has entered into definitive
agreements to acquire the Topaz Solar Farm in San Luis Obispo County, Calif.
Ironically, the Topaz Solar Farm was built by First Solar, and the solar company
has agreed to operate the plant for the Berkshire holding company. Make no
mistake: There will be growth in the solar sector in the months and years to
come, and once the market recognizes this growth, the sun likely will rise again
on stocks in the sector. When it does, investors who got in on the 2011 solar
stock sunset could see their portfolios shine. As of this writing, Jim Woods did
not hold a position in any of the aforementioned securities.