Solar stocks have soared this year, but now they are feeling the heat of the market: Could the boom be over?

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Top line

Solar stocks are being hit hard by this week’s market rotation, but analysts say there is still room to recover and expand, even with a possible Congress split on the horizon.

Highlights

Shares of SunPower, SolarEdge and Enphase Energy, three of the country’s largest solar power companies by market cap, fell 1% to 3% on Tuesday, and ETF Invesco Solar, which counts the top three among its top three. holdings, fell 2.7%. .

The industry decline on Tuesday follows similar losses on Monday, but the performance is a reversal from gains in previous months: Invesco’s solar ETF more than doubled this year, while SunPower and SolarEdge have to roughly quadrupled and doubled, respectively.

Asset managers “are witnessing huge demand” for environmental, social and corporate governance (ESG) investments, Goldman Sachs noted over the weekend, adding that Invesco’s Solar ETF, ETF The company’s best-selling ESG, posted net inflows of around $ 400 million, or about 20% of current assets.

A Democratic sweep expected in last week’s election helped spike clean energy stocks during the broader market rout, but those expectations did not materialize and solar stocks have since fallen by around 5% compared to highs at the end of October.

But Cowen analysts said Friday that a divided Congress should remain in favor of solar energy companies, and that there may even be an opportunity to expand tax credits for the industry in the hope that this will help stimulate employment.

Morgan Stanley is also still positive on solar, saying in a post-election memo that it continues to see “a robust deployment of renewables driven by the favorable economics of wind and solar resources – albeit at a growing rate. slower (but still fast in many cases). “

Crucial quote

“Investor enthusiasm is high in the sector, believing that a Joint Congress will remain supportive of renewable energy sources and may seek to extend the tax credit for solar, wind and other technologies. renewable given the opportunities for job creation in the Democratic and Republican states, ”Cowen analysts said Friday.

Chief critic

In a note to customers on Tuesday, Raymond James’ Pavel Molchanov was bearish on Tempe, Ariz.-Based First Solar in particular, noting that Biden could repeal tariffs that have boosted the growth of the company, which is falling nearly 7% Tuesday after Molchanov’s decision. downgrade, pushing his earnings this year to around 40%. “In our opinion, the market is underestimating these risks,” Molchanov said before adding that the downside is specific to First Solar and not to the industry as a whole, on which he is still optimistic.

Key context

S & P’s Energy Select Sector Fund is up 16% this week, although it is still down 45% for the year. But those gains are not affecting clean energy companies, which had widely hoped Democrats would sweep the election and pass a sweeping climate bill, dubbed the Green New Deal, that would spur industry growth. UBS’s Mark Haefele summed up the dichotomy in a post-election memo, saying “Energy stocks are benefiting from a slight rally as the outlook for an aggressive Green agenda diminishes … The outlook for the sector remains uncertain, and we expect some volatility until uncertainties, primarily related to the outlook for oil prices, abate. “

Further reading

Strong GOP performance ties Biden hand on green energy agenda (Forbes)

Five actions President-elect Biden could take quickly on renewable energy (Forbes)

Dow stays afloat as big tech continues to sink and small businesses explode on vaccine developments (Forbes)

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