Credit: Shutterstock photoAs torturous as it can be to watch political speeches, there are times when doing so is actually quite informative. Watching Hillary Clinton’s speech on Tuesday, for example, when she was celebrating becoming the Democratic Party’s presumptive nominee for the Presidential election this fall left me with one overriding investment idea.
Hidden among the contemplation of the historic nature of a female nominee for the highest office in the land and the usual platitudes was one specific piece of policy, and it is a policy that is both within the control of the President and actionable for investors.
Clinton spoke of the U.S. becoming a leader in “clean energy.” As anybody in the coal business will tell you after the last eight years, the direction of energy policy in America is very much under the control of the President and his or her administration, regardless of the makeup of Congress.
Just yesterday we heard of yet another round of closures of coal-fired power stations when DTE Energy announced plans to close three coa- fired power stations that collectively supply around a quarter of Detroit’s electricity and replace them with cleaner energy sources, including natural gas, solar, and wind power.
In that environment, and with Clinton, who leads in the polls, clearly indicating a continuation if not expansion of existing policy, buying solar stocks would seem to be a no brainer. Of course, if a week is a long time in politics as British Prime Minister Harold Wilson once said, then the five months between now and the election is an eternity, and there is plenty of time for Clinton to lose her lead. From an investment perspective, though, that doesn’t matter. The attention that is likely to be paid to solar and other alternative energy sources in that time will lend support to the stocks regardless.
In the light of the ongoing shift towards solar and other clean energy sources it would be reasonable to expect that stocks in the sector would be trading at high multiples, but that isn’t the case. After decades of false starts and several high profile bankruptcies, investors are wary of the industry and even established profitable companies are usually available at a discount to the broader market, leaving plenty of room for appreciation as the story develops.
So, how should investors look to profit from this?
Normally, for a sector play such as this it would make sense to use a sector ETF. In this case, however, there is nothing that is really suitable. The main solar energy fund, Guggenheim’s Solar ETF (TAN), for example, is good in some ways, but is a global fund, while this is a U.S.-centric play.
Investors would be better off identifying two or three stocks to use, and in many ways, this is not a time to over-complicate things. Many small companies are still over-dependent on subsidies and have yet to show that they can make money, so sticking with the big players makes the most sense.
Two of the largest in the North American markets are First Solar (FSLR) and Canadian Solar (CSIQ).
Figure 1: First Solar 1 Year Chart (From TD Ameritrade Think or Swim)
Figure 2: CSIQ 1 Year Chart (From TD Ameritrade Think or Swim)
As you can see, both have had a tough first half of the year and are available closer to their one year lows than highs, a situation that appeals to the trader in me, particularly with reference to a sector that goes in and out of fashion with investors. Both FSLR and CSIQ are also cheap by more conventional valuation metrics, with trailing P/Es of 6.69 and 7.83 respectively. Both are also profitable and they should form the core of your solar mini-portfolio.
Solar energy has come a long way in the last few years, with the cost of panels falling rapidly, making it competitive in price with fossil fuels, but its somewhat checkered past means that stocks in the industry are still cheap.
On the evidence of Clinton’s celebration speech, though, where clean energy was a clear area of focus, that history could quickly be forgotten as attention is focused on the industry’s future. On that basis, regardless of the outcome of the election, buying solar stocks for a few months looks like a solid play.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
