Solar energy ETFs -- the biggest losers the past three years -- have exploded in the New Year, suggesting their fortunes may have finally brightened.
Guggenheim Solar ( TAN ) has flared up 13.8% so far this year. Its less popular counterpart,Market Vectors Solar Energy ETF ( KWT ) surged 17%. Both ETFs collapsed 33% last year, 64% in 2011 and 29% in 2010.
Both broke above their long-term, 200-day moving average for the first time since May 2011. Although they have weak IBD Relative Strength Ratings of 48 and 37, respectively, both have A+ Accumulation-Distribution Ratings, the highest possible. That indicates institutions are backing up the truck and loading up shares.
SunPower ( SPWR ) led the charge, skyrocketing an eye-popping 59% last week. It signed a deal valued at $2 billion to $2.5 billion to build two solar power projects in California with a unit of MidAmerican Energy Holdings, a part of Warren Buffett'sBerkshire Hathaway (BRKA). Construction for the projects -- with a combined capacity of 579 megawatts -- will begin in the first quarter of 2013 and is set to be done by the end of 2015.
Lazard raised its rating on San Jose, Calif.-based SunPower's shares to buy from neutral. The firm has utility contracts worth $3 billion through 2016, strong growth in Japan and technological leadership in photovoltaic production. It also boasts streamlined manufacturing and high gross margins of 15% to 23%, which should grow earnings through 2014 and beyond, Lazard's analysts wrote.
"We see the company as one of the beneficiaries of sector bifurcation with strong technology, a highly credible management team, and broad geographic reach through its partnerships," Lazard wrote.
Although installation growth is expected to be strong in 2013, they don't expect Chinese solar manufacturers to return to profitability. Lazard recommends buying only SunPower,First Solar ( FSLR ) andMEMC Electronic Materials ( WFR ). First Solar is successfully moving away from subsidized markets and MEMC shares are undervalued, they wrote.
First Solar, a big holding in both TAN and KWT, rallied 12% the last week and an astounding 49% the past three months to an 11-month high. It's tripled from its 52-week low of 11.43 reached in June.
Raymond James downgraded the largest U.S. solar panel maker's shares to "underperform" from "market perform" last week on expectations that earnings will fall 24% in 2013 and 39% in 2014 because its new projects carry much lower unit margins.
"Its industry-leading cost and margin structure is no longer sustainable, because those advantages have been essentially wiped out by the meltdown in (Chinese module) pricing," Raymond James wrote in a client note.
Shares are overpriced and staging an "irrationally exuberant junk rally" like they did last year, when they vaulted on renewed optimism, positive industry reports and a short squeeze, Raymond's analysts wrote. That's when short sellers have to buy back their positions to close their trades and thereby drive up demand for shares.
They rated SunPower,Suntech (STP) andTrina Solar (TSL) negatively.
Standard & Poor's recommended selling First Solar on projections of a 15% sales drop in 2013. "Revenues will be hurt by sharply lower prices, as solar companies are forced to reduce prices given lower government subsidies and aggressive competition from China," S&P wrote.
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