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Invest in Solar Now?

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Ever since we moved to solar power, I've been looking at solar stocks. I'm convinced that the future of energy is moving to solar. I look at it a little bit like buying Intel or Microsoft before every home had a computer... or multiple computers.

I don't pretend to be knowledgeable enough about individual companies to pick winners and losers. There's an ETF under the ticker NYSE:TAN that tracks a bunch of solar companies. If I'm going to invest in solar power, the TAN ETF is the best way to do it. It appears that I'm not alone in thinking this way.

There's only one problem. I can't pull the trigger. For every reason I can think of to buy it, I can think of another reason why I shouldn't.

Why not create a time-tested pros and cons list?

Reasons to Invest in Solar (Pros)

  • The technology for solar has been getting better every year and it continues to get better and better. It's kind of like CPUs, you know they aren't going to get worse and improvements are continually coming down the pike.
  • Solar installations grow exponentially each year. Growing sales and a large untapped market seem to be a great combination.
  • Last week the TAN ETF fell off a cliff on Thursday. Okay, it might not have been the biggest cliff, but it lost over 6% which is a lot for an ETF in one day. (I love when stocks I don't own drop, it means I can buy them on a discount.)
  • Last week the White House announced that they were going to put a lot of money to bring solar to low-income housing. No word if it asked for a new coat of paint (you know... being a talking house and all).

Reasons Not to Invest in Solar (Cons)

  • Solar power gets more efficient every year. That's incentive for people to wait on the sidelines until next year.
  • The "old" inefficient product might be hard to sell without deep discounts. Discounted product may leave less profit for companies.
  • The current 30% US Federal tax credit for installing solar ends in 2016. That means solar panels will be effectively a lot more expensive for consumers 18 months from now. Improved efficiency should help ease the sting of that, but I expect a drop in installations. It simply would make less economic sense, as it would take longer for people to recoup their investment.
  • The President's term expires in 2016, so his plan to get low-income housing using solar power may be curtailed by the next President. (Hat tip to LMaM writer Kosmo for bringing this one up.)
  • About that buying opportunity of the ETF dropping more than 6% in one day... the next day it went up 6%. The day after that, it went up 3%. That brief window of buying opportunity is gone, which leads me to...
  • Oil is cheap. When oil is cheap there's less economic incentive to go with alternative sources of energy like solar.

... The ETF's value itself is hard to gauge.

I'm not sure if this is either a pro or a con, so I'm putting it outside of each list. For a year around mid-2012 to mid-2013, it traded in the teens. In the next year it got to around $50, before it start to decent towards the mid-30s around mid-2014.

This is when I was getting interested in solar. I watched it soar up to $50. Since I like buying bargains, I cringed as it got more and more expensive. I don't like to chase a stock or index as it reaches new highs, especially in a short time. The current drop brings it to the mid 30s again.

That kind of roller coaster is not exactly unexpected, but it seems to coincide with China's stock market surge and subsequent drop of late. That is somewhat expected because nearly half of the components of the ETF are China stocks.

If you haven't been following China of late, it surged something like ~100% for about a year and had a recent ~30% pullback. It's almost in line with the ETF going from $30 to $50 and coming back down to mid $30s again. (In many ways, it feels like I'm buying into that China market... but that's a much larger discussion for another day.)

It's hard for me to put some kind valuation on something went so high only to crash. Was the high a bubble? Is this crash a bargain? The Guggenheim page seems to show that it the P/E was 13.9 when it traded around $40 in March. That seems like a reasonable valuation.

I am confident it is going in some direction... just not sure which. Any thoughts?

Posted on July 13, 2015.

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4 Responses to “Invest in Solar Now?”

  1. I think the main worry about solar is that it’s just so cost prohibitive. Less so for corporations, I guess, which is where a lot of the money would come from. (The Fry’s down here in Phoenix are starting to add solar panels to various locations.)

    But there are still a lot of people who doubt that it’s really feasible to run their home or business completely on solar. That and the cost keep a lot of potential buyers out.

    So if you think solar technology will evolve to have a lower cost of entry, then buy it now. If you suspect otherwise, I’d hold off until you see what happens after 2016.

    That said, I don’t “do” the stock market. I have an IRA and that’s about all the investing we can do right now. So I’m hardly an expert.

    • Lazy Man says:

      At least here in New England it is extremely cost effective, saving us around 70% on our electricity over the long term. Much of that is probably gains from state and federal subsidies.

      I decided to jump in with a buy yesterday. It’s more dipping my toe in the water.

  2. Big-D says:

    The issue I see is you need to review the next election carefully. I would consider it a short term investment until the next political election results are in.

    • Lazy Man says:

      My thinking is that I’m in it for the long, long haul – minimum of 10 years unless it bubbles too high before then. I hope that technology will overshadow politics over the long run.

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