Play The Energy Market Rally With 4 Solar Stocks

Oil price recorded the longest run of monthly advances in seven years, crossing the $50 mark on May 26, 2016, from the below-$30 level in February. The notable gain was attributable to better demand/supply dynamics, helping investors to rebuild their lost confidence in a rebalancing oil market.

In tandem with oil exploration and production stocks, solar stocks too have taken a beating ever since oil prices began to tumble in Jun 2014. This created a lot of confusion among investors keen on the renewable space, particularly solar photovoltaic (“PV”). Solar stocks though backed by a positive regulatory climate have paid the price for the oil price downcycle.

However, tailwinds like a global boom in installations and a turnaround in profitability across the industry following years of cost cutting to survive declining panel prices have provided strong support. Data from the U.S. showed robust solar uptake in 2015. In particular, President Obama’s "Climate Change Action Plan" and the favorable green energy trends have done a lot in pushing the sector northward.

The solar sector is also reaping the benefits of the production tax credit extension. The budget deal struck by Congress last December offered big benefits for solar power. The legislation gave the nod for an additional five years of an investment tax credit (“ITC”) enabling solar companies to keep claiming federal ITC at 30% of the price of solar energy systems. The ITC was earlier set to expire at the end of 2016.

Keeping in mind the green future ahead, we bring to your focus four Zacks Rank #1 (Strong Buy) or #2 (Buy) solar plays that are making the most of the favorable industry dynamics. After all, it’s good to be in the renewable business right now. It would also be prudent for investors to add solar stocks to their portfolio now given the fresh lease of life in the broader energy sector.

Our Choices

China-based ReneSola Ltd. (NYSE:SOL) manufactures and sells solar wafers and related products. The company's solar wafers are sold to both Chinese and international PV cell and module manufacturers.

ReneSola has made noticeable improvement in transforming itself from a solar product manufacturer to a multi-faceted participant across the green energy value chain. The company has been able to cut net losses significantly. In fact, it swung into profit in the first quarter of 2016 from a loss incurred in the year-ago period.

It has surpassed earnings estimates in all the last four quarters with an average beat of 232.89%. The company currently has a Zacks Rank #1 and has seen positive earnings revisions for the quarter ending Jun 2016 as well as for 2016.

Headquartered in Seoul, South Korea, Hanwha Q CELLS Co., Ltd. (NASDAQ:HQCL) produces PV cells, PV modules, silicon ingots, and silicon wafers in the U.S, Europe, South Korea, Japan, the People’s Republic of China, India, Turkey, and internationally.

This Zacks Rank #1 stock has reported first-quarter 2016 profit of 33 cents per share, reversing its year-ago loss of 25 cents. The company has been able to boost its gross margin (up 670 basis points year over year) along with cutting operating expenses (down 20.3%).

Strategic initiatives to improve the capital structure and careful investments are likely to fuel growth ahead.

Although 2015 turned out to be a bad year for solar YieldCos., 8point3 Energy Partners LP (NASDAQ:CAFD) , a limited partnership formed by two major solar companies, First Solar Inc. (NASDAQ:FSLR) and SunPower Corp. (NASDAQ:SPWR) , reported impressive first-quarter fiscal 2016 (ending Feb 29, 2016) results.

The partnership swung into profit with a net income of $5.3 million in the reported quarter from a net loss incurred in the year-ago period. This Zacks Ranked #2 stock generated revenues of $7.1 million in the fiscal first quarter, up 232.8% year over year. The partnership also reiterated its targeted distribution growth rate of 12–15% for 2016.

Chinese solar manufacturer Yingli Green Energy Holding Co.’s (NYSE:YGE) shares grew the most in the last seven months after the company said higher shipments to Japan will help it report its first quarterly profit since 2011.

The company announced its preliminary first-quarter 2016 results on Jun 6 wherein it said that it expects to report gross margin of 18.5% to 20.5%, up from the 11.8% it reported for the fourth quarter. Although Yingli Green didn’t provide any figures for net income, it said that its net income for the first quarter of 2016 turned into positive for the first time since the third quarter of 2011, with an estimated net margin of 2.5% to 4.5%.

The company holds a Zacks Rank #2 and is scheduled to report its first-quarter 2016 earnings on Jun 14.

To Sum Up

Unsurprisingly, renewable energy stocks are beaming. It is evident that demand for renewables is strengthening at a rapid clip. Moreover, the gradual widening of the solar markets should bode well for all global players and instill confidence in the industry over the long term.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

FIRST SOLAR INC (FSLR): Free Stock Analysis Report

RENESOLA LT-ADR (SOL): Free Stock Analysis Report

YINGLI GREEN EN (YGE): Free Stock Analysis Report

SUNPOWER CORP-A (SPWR): Free Stock Analysis Report

HANWHA Q CELLS (HQCL): Free Stock Analysis Report

8POINT3 ENERGY (CAFD): Free Stock Analysis Report

Original post

Zacks Investment Research