Can Solar Shine Bright In 2016?

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Includes: CSIQ, DQ, KWT, SEDG, SPWR, TAN
by: Kapitall

By Mary-Lynn Cesar

The sun is the Earth's major source of energy. In 2016, solar stocks are a major source of portfolio burn.

As the myth of Icarus tells us: if you fly too close to the sun, you're bound to get burned. Apparently, so far in 2016, the same can be said about solar stocks. Former rising solar energy star SunEdison (OTCPK:SUNEQ), which was the world's most valuable solar company back in July 2015, filed for bankruptcy in late April. First Solar (NASDAQ:FSLR) is down 26.32% for the year, SolarCity (NASDAQ:SCTY) - the recently announced Tesla (NASDAQ:TSLA) acquisition target where Elon Musk chairs the board - has lost 56.96%, and SunPower Corporation (NASDAQ:SPWR) has tumbled 48.45%.

The solar industry's woes primarily stem from underwhelming earnings guidance. First Solar decided against providing guidance for 2017, citing the unpredictable nature of its business as its reasoning. SolarCity lowered its full-year guidance in May due to weakening demand in the U.S. residential market. And last month, SunPower issued guidance for the second quarter of $310 million to $360 million in revenue, way below the Wall Street consensus of $722 million and down from the $376.7 million reported a year ago.

Not all solar industry news is bad, though. In December, Congress voted to extend the 30% Investment Tax Credit, which makes it cheaper for businesses and homeowners to adopt solar energy, by five years. The legislative body also opted to extend the wind energy Production Tax Credit. Per Bloomberg New Energy Finance, the extension may lead to 37 gigawatts in new wind and solar capacity (a 56% increase), $73 billion in additional investment and renewable energy adoption by eight million households.

This may explain why, despite negative performances year-to-date across the industry, analysts are still bullish on some solar stocks. Below is a list of solar stocks pulled from the Guggenheim Solar ETF (NYSEARCA:TAN) and the VanEck Vectors Solar Energy ETF (NYSEARCA:KWT). The stocks below all have a "strong buy" average analyst rating. Analysts arrive at these recommendations after extensive research and then rate stocks on a numerical scale between 1 (strong buy) and 5 (strong sell). All of the stocks in the following list have a rating below 2, which, depending on your inclinations, may make them worthy of further research.

Click on the interactive chart to view data over time.

1. Canadian Solar Inc. (NASDAQ:CSIQ): Engages in the design, development, manufacture and sale of solar power products in Canada and internationally. Market cap at $939.05M, most recent closing price at $16.25.

Average analyst recommendation is 1.6.

2. DAQO New Energy Corp. (NYSE:DQ): Manufactures and sells polysilicon in China. Market cap at $220.16M, most recent closing price at $21.10.

Average analyst recommendation is 1.6.

3. SolarEdge Technologies (NASDAQ:SEDG): Designs, develops, manufactures and sells direct current (DC) optimized inverter systems for solar photovoltaic (PV) installations in Israel, Europe, the United States, and internationally. Market cap at $815.84M, most recent closing price at $20.03.

Average analyst recommendation is 1.9.

4. SunPower Corporation: Designs, manufactures and delivers solar systems to residential, commercial and power plant customers worldwide. Market cap at $2.14B, most recent closing price at $15.47.

Average analyst recommendation is 1.9.

(Monthly return data sourced from MOD. All other data sourced from FINVIZ.)