Three sunny solar stocks

February 23, 2016 01:00 PM

Eight of the 16 stocks in the solar industry are Zacks Rank Buys. That is an exceptionally high percentage given the 20% average for all other industries. That means there are broad-based fundamental improvements in play that should drive profit growth and share prices going forward. 

Even before the United Nations Climate Change Conference in Paris there was momentum at play as more of the world has become environmentally friendly. Some go for solar power because they believe it is ethically the right thing to do; some do it because they can lower their energy costs in the long run.

The agreement from Paris still is not firmly ironed out. But if indeed it does become fully authorized it would lead to a massive decrease in carbon emissions that would most certainly increase demand for solar equipment. That is part of the long-term bet on these companies. 

In the near-term there is one more catalyst for solar makers. These firms are no longer spring chickens. Thus, the massive investments that were needed at first to build facilities already have been made. And more years in business have led to greater operational efficiency. Adding it altogether, profit margins are becoming healthier which helps to fuel profit growth.

Now let’s turn our attention to the three most attractive solar stocks: 

JA Solar (JASO): Earnings have been spotty over the last few years, but recently they put up a 200% earnings surprise followed by a 134% showing. This became one of the better investment stories in the second half of 2015. And with a value score of “A” there is likely more upside to come. 

Jinkosolar (JKS): JKS has been a more consistent earnings performer than JASO. In fact, they have produced earnings beats in nine of the last 11 quarters. Add to that a Momentum Score of “A” and a price/earnings of 5.9 and there is plenty to like in this stock.      

Renesola (SOL): These guys continue to struggle to actually make a profit which explains the low, low price on shares. Yet, things are starting to look up after a pair of impressive earnings beats. Those who like low priced stocks certainly will find appeal here under $2 per share. And those who like high risk, high reward will want to look in this direction too.

As stated earlier, half of the stocks in this industry are “Buy” rated. When the trends are this good, it is sometimes better to go the industry ETF route instead of selecting individual stocks. This diversification approach helps to increase the odds of success instead of hoping you pick the right stock in the industry. Happily there are two good exchange-traded funds choices to consider in KWT and TAN.

About the Author

Steve Reitmeister is the executive vice president at Zacks Investment Research at zacks.com. The cornerstone of the firm is the Zacks Rank stock rating system and its 26% average annual return since 1988. These results have been examined and attested to by the independent accounting firm Baker Tilley. @ZacksResearch