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Will the Solar Stock Mini-Boom Continue?

Have solar stocks come back into fashion?

We’d all love for solar to become a cheap and clean replacement for fossil fuels, but solar stocks have been investment death for four years now. In that time, the Dow Jones World Solar Energy Index has fallen from 1515 to 107 today.

But recently, solar stocks have shown new life, as that same index is already up 12% in 2013.

So is solar back, or is this just a small bright spot in a shadowy sector?

Let’s break down this mini-boom.

The biggest solar producer, First Solar (FSLR), is up 4.88%. And SolarCity Corp. (SCTY) is up about 100% since its December IPO.

But the biggest surge has come from Chinese solar stocks. They’ve been rising for a couple of months…

Since November 1:

  • LDK Solar (LDK) is up 113.48%.
  • Suntech Power (STP) is up 80.49%.
  • Yingli Green Energy (YGE) is up 51.74%.
  • And Trina Solar (TSL) is up 13.77%.

All of these stocks got an especially big boost on January 4. LDK Solar, for example, jumped 11% that day. That’s because the Chinese government announced it would spend $290 million on subsidies for rooftop solar projects. Speculation that China would make this investment began in November, right when Chinese solar stocks started turning around.

As for U.S. solar stocks, their rise began when the Commerce Department announced tariffs on solar cells manufactured in China.

And that’s the problem.

The solar industry can’t yet stand on its own. The technology simply doesn’t compete with other forms of energy on a cost basis. Solar still costs somewhere in the neighborhood of $163 per megawatt hour, compared to $101 for nuclear or $90 for a natural gas turbine plant.

That’s why the only way to play the game with solar stocks is to stay one step ahead of policy, regulation and subsidies. And that’s a tough game to win. Most of the U.S. solar industry opposed the tariffs though the result was still a rising stock.

Now, if you’re a fan of innovation and new energy sources, this is good. If a new technology like solar cells isn’t profitable in its infancy, it makes sense to foster that development. Someday cells may compete with other forms and we may all be better off.

But as an investor, it doesn’t bode well for solar stocks. They’ll get a boost when the government intervenes. But they won’t earn you a profit, until they can earn themselves one.

And “the chase” continues,

Matthew Weinschenk

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Matthew Weinschenk