Solar Stocks Slapped Around, But All's Not Bad

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This week solar stocks underperformed the market at large by a decent margin. We use the Claymore/MAC Global Solar Energy ETF as a proxy to assess such things. It was below the Dow, S&P and Nasdaq by a few percentage points.

The leader in the solar industry, First Solar (FSLR), did much worse than all the aforementioned indicators. Evergreen Solar (ESLR) had a little pop at the end of the week, but ultimately finished below the market, as well. It makes sense that the solar stocks fared poorly. There were rough earnings from Energy Conversion Devices, Canadian Solar, and OptiSolar basically went out of business.

Yet, there were reasons for optimism in the solar sector. First Solar announced that it had produced a total of 1 GW of energy and start up Solyndra announced that it was offered the first ever loan from the Department of Energy for a renewable energy loan program. Solyndra will put the money (if it accepts it) towards building a larger factory.

And beyond these short term gains, it’s important to remember the long term picture for solar is very promising. Below is an image from Energy and Capital that shows off the ‘hockey stick’ growth we all love to see.

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Here’s the optimistic advice for looking at the solar market, offered by Nick Hodge, author of that piece:

Even with the economy in the pits, the German solar market—the largest in the world—is still slated to grow ~30% this year, thanks to renewed lending by German state bank KfW. Funding for rooftop and small ground installations is also flowing again from large European investment banks and local savings banks.

Companies familiar with the market have indicated it will be a few more months before solar funding eases in the rest of the EU.

Point is, if you invest in solar this year, make sure the company has exposure to the German market, which will be one of the earliest to recover.

I think we’ll also begin to see some space emerge between solar companies that once moved in stride. An oversupply of panels means distributors and integrators can be highly discriminate when it comes to choosing which company they patronize.

Only the most highly-efficient panels with the best prices and best warranties will be purchased. Smaller Chinese companies are probably the most at risk.

Balance sheets for all solar companies will be off for the next few quarters as reduced demand from the recession and cyclical seasonal patterns works its way off balance sheets.

In addition to Germany, the U.S.—considered the sleeping giant of the solar industry—is also doing much to ensure a robust solar rebound.

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