Solar stocks endured a rough January, but some analysts believe the industry can regain its footing this year, potentially providing support for assets such as the Invesco Solar ETF (TAN).
Here’s the lay of the land that TAN, the original solar equity exchange traded fund, is dealing with. Last year, investors grew disappointed with an abundance of domestic political talk but lack of action on the renewable energy spending front. Then in December, a regulatory body in California — arguably the state that’s most forward-thinking when it comes to renewable energy adoption — proposed dramatic cuts to a marquee rooftop solar incentive.
Fast-forward to 2022, and renewable energy stocks, including TAN components, are caught up in a sell-off that’s being fostered by growth stocks.
“There has been a massive indiscriminate selling of growth/tech/innovation positions as anything thought to be a long-duration equity (such as clean energy) had to be sold amidst the Fed’s hawkish pivot,” said Anastasia Amoroso, managing director and chief investment strategist at iCapital, in an interview with Pippa Stevens of CNBC. “Clean energy was caught in this rotation.”
If there’s one benefit to TAN’s recent woes, it’s that some solar equities are offering attractive valuations — something that rarely occurs in this space. That could prompt some bargain-hunting among investors who believe in the long-term outlook for solar.
“Valuations have reset materially lower and if the Fed uncertainty abates, the longer-term structural positive momentum in solar should re-assert itself as demand growth remains robust even without extra policy support,” Amoroso tells CNBC.
TAN, which follows the MAC Global Solar Energy Index, trades at 29.22x forward earnings, according to Invesco data. Broadly speaking, that’s not cheap, but it’s an interesting multiple relative to solar stocks’ history.
“Long-term investors interested in the long-term decarbonization theme (which is generally not impacted by these near-term headwinds) are being offered an attractive entry point, in our view,” said JPMorgan analysts in a recent note to clients.
The bank is bullish on Array Technologies (NASDAQ:ARRY), Sunrun (RUN), and Sunnova Energy International (NASDAQ:NOVA). Those stocks combine for 10% of TAN’s roster. Enphase Energy (NASDAQ:ENPH), TAN’s second-largest holding at a weight of nearly 8%, is another solar stock that Wall Street likes. It’s one of the few names in the group that gained last year, though it slipped in January.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.