Why Solar Energy Stocks Popped Again Today

What happened

Shares of solar energy stocks had another outstanding day on Thursday as the entire renewable energy sector pushed higher. The election certification was certainly seen as a positive, as was the prospect of a more favorable policy and regulatory environment.

The hottest solar stocks of 2020 stayed hot in trading today. SunPower (NASDAQ: SPWR) was up as much as 10.5%, ReneSola (NYSE: SOL) climbed 38.8%, and Enphase Energy (NASDAQ: ENPH) popped as much as 9.4%. The three stocks were up 4.9%, 7.8%, and 4.4%, respectively, at 3:40 p.m. EST.

Solar farm with a setting sun in the background

Image source: Getty Images.

So what

From a policy perspective, not only will Biden's win and inauguration as president be important, Democrats having control of the Senate will be key from a policy and appointment standpoint, which I highlighted yesterday. And that's news that continues to help solar energy stocks overall.

Helping matters, the mood around renewable energy in general is positive with Tesla (NASDAQ: TSLA) getting an upgrade and Plug Power (NASDAQ: PLUG) getting a $1.5 billion investment today. And what's good for some renewable energy stocks must be good for all, or that seems to be the trading trend today.

What's certainly true for renewable energy stocks, and solar energy stocks in particular, in 2021 is that there will be plenty of low-cost funding available in both debt and equity markets. And demand is increasing as customers find solar energy more cost-effective and start buying electric vehicles in bigger numbers. In a way, high stock prices will be a fuel behind the industry's growth, so these stocks pushing higher creates almost a self-fulfilling cycle.

Now what

I certainly think the solar energy industry has a bright future, and SunPower, ReneSola, and Enphase should be able to grow the top line and improve margins over the next few years. But with stocks up big early in 2021 on speculation that the political and regulatory environment is going to change, I worry that growth won't meet expectations. It will take years for any policy changes to truly hit the bottom line, and expectations need to be set as such.

The trading today is clearly a broad momentum move for renewable energy stocks. And as some of the most volatile and well-known stocks, SunPower, ReneSola, and Enphase Energy are leading the way. But without news or earnings driving the move, I worry that this could be a pop that doesn't last long. With everything going on, the new administration and Congress may have priorities other than renewable energy. And when the excitement fades, these companies will have to start proving that they can grow significantly over the next few years to live up to new, lofty expectations.

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Travis Hoium owns shares of SunPower. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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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