Solar ETF Is A Winner As Industry Outlook Turns Sunny

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Solar energy stocks are No. 1 in IBD's industry rankings, up about 50% this year, and Guggenheim Solar ( TAN ) has been a good ETF to track that advance.

[ibd-display-video id=3017220 width=50 float=left autostart=true] The fund, which is in the IBD ETF Leaders Index, holds about two dozen companies that make solar panels, install solar systems, produce the materials for panels, or are key players in the industry. Nearly half the holdings are U.S.-based companies, but some 35% are based in China and Hong Kong, where solar energy has become a principal tool to combat air pollution.

Shares of Guggenheim Solar pulled back sharply in late November and early December but found support at the 50-day moving average . That gives investors a buy area in roughly the 23.50-25 price range.

2017 has been a year of recovery for solar companies, after a couple of years of overproduction and weak prices in crude oil, a commodity for which solar acts as a substitute.

On Dec. 5, First Solar ( FSLR ) - the ETF's largest holding, with 13.5% of the portfolio - provided 2018 guidance that topped the consensus estimates on earnings and met on revenue. Then on Dec. 11, a Baird analyst said the market has hit an inflection point that will continue to see long-term growth thanks to lower installation costs and advancements in technology.

The industry has unique political risks, no doubt. Alternative energy is a rallying point in the climate-change movement, and much of the industry relies on government subsidies. Renewable-energy stocks plunged on Dec. 4 when a tax bill passed by the U.S. Senate contained provisions that could harm wind and solar energy investment and deployment.

About 20% of the portfolio is in the utilities category, although some of the companies are affiliates of utilities rather than true power generators.

Solar power remains a small percentage of U.S. utility grids, but it is a segment that is growing quickly, says Jay Rhame, a utility and natural gas analyst at Reaves Asset Management in Jersey City, N.J. "And the trend is accelerating," with solar now accounting for a larger share of alternative energy than any other type, he told IBD.

Costs have been falling and many state regulators are pushing utilities to adopt solar power - two reasons that have contributed to solar expansion.

The IBD ETF Leaders index shows the performance of a model portfolio of exchange traded funds that are leading the overall market. A computer algorithm selects the ETFs based on relative strength and other objective performance ratings, with periodic adjustments for market trends and conditions. The universe from which the ETFs are selected includes the funds listed below.

ETF Leaders ( View Full List )


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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.

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