Solar stocks are holding up well despite the pandemic, which slowed commercial and residential construction to a crawl, especially in places like California that imposed virtual contracting halts. The state is now underpinning a steady sector bid, with a new law that mandates solar energy for all new construction. Solar tariffs against China have also bolstered sales and installations by local operators that include Arizona's First Solar, Inc. (FSLR) and Utah's Vivant Solar, Inc. (VSLR).
High oil prices were required to support sector uptrends in prior years, so April's crude oil collapse into negative numbers should have undermined buying interest. This didn't happen because political pressure has taken control of the tape, with growing calls by millennial and Gen-Z environmental groups for an end to fossil fuel use. While their long-term success isn't ensured, center and left-of-center voters have been lining up at a rapid pace to support that goal.
Financing costs now provide a strong tailwind for sector growth, with collapsing yields allowing major installers and small consumers to tap clean solar energy without breaking the bank. On the flip side, the Federal government is now winding down healthy subsidies paid directly to consumers, with the 26% maximum tax credit dropping to zero in 2022. However, that could change if a Democrat wins the White House in November.
First Solar came public at $24.50 in November 2006 and entered a momentum rally that posted an all-time high at $317 in the second quarter of 2008. It then collapsed with world markets, cutting through $100 and dropping to $85 in November. That level held support into a 2011 breakdown that pierced the IPO opening print before bottoming out at an all-time low in the lower teens in 2012. The subsequent uptick failed within 10 points of new resistance in 2014, while a 2016 breakout attempt also failed to clear the barrier.
The stock sold off to a four-year low in April 2017 and failed another breakout attempt in the first half of 2018. It then entered a broad declining channel that carved a series of lower highs and lower lows, culminating in March 2020's three-year low at $28.47. The second quarter bounce has now reached within 10 points of channel resistance, which needs to be mounted on healthy volume to set off a buying signal.
A rising channel has contained price action since 2012, setting a long-term target at $90 if the stock can mount smaller-scale channel resistance. As you can see from the blue line, the rising channel will align with the 2011 triple top breakdown in about three years, lowering the odds that the stock will trade in the triple digits in 2021 or 2022. However, the target would still offer healthy gains from currently traded price levels.
Vivant Solar is a small-cap installer that is well positioned to profit from California's solar construction mandate. The stock posted an all-time high at $18.71 during the first public session in October 2014 and rolled into a brutal downtrend that hit an all-time low at $2.16 in 2016. Price action since that time has alternated between months of apathy, vertical rally waves, and bone-shattering declines.
The 200-day exponential moving average (EMA) reveals a steady uptrend under the surface, lifting from $3.50 in 2017 to $7.50 this year. The stock posted a four-year high in February 2020 and plunged to a two-year low a few weeks later, while the second quarter bounce has recouped about 70% of the losses. The on-balance volume (OBV) accumulation-distribution indicator has held up remarkably well through the volatile action and is now trading at an all-time high, predicting that price will soon test the 2020 high.
The Bottom Line
Solar stocks are making a comeback, with macro tailwinds likely to grow in coming years.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.