What to Expect from Solar Stocks
Everyone knew that President Donald Trump was likely to withdraw from the Paris Agreement, so don’t let the media fool you into thinking it was a surprise. It wasn’t. And while backing out of the deal is going to hurt solar stocks (and renewable energy stocks more broadly), it isn’t a fatal blow.
Nothing has changed on the ground.
The biggest threat to clean energy stocks came in 2015, when Congress put its tax credits on the chopping block. A failure to renew those tax credits would have utterly decimated the solar industry.
Congress eventually did the right thing by renewing those credits, but not before forcing solar stocks into a sharp nosedive. The uncertainty of those months did major damage to the industry. (Source: “Tax Credit Extension Gives Solar Industry a New Boom,” MIT Technology Review, December 28, 2015.)
Paris is a flesh wound by comparison. Here’s why.
President Trump’s exit from the Paris Agreement cannot turn back time. The economics have shifted, folks. He cannot change the fact that solar now provides more jobs than coal. Nor can he change the fact that solar is cheaper than coal in some parts of the world.
According to recent analyses, solar prices are expected to continue this downward trend over the next decade. That’s the free market at work.
Solar stocks are inextricably linked to these trends. Their fortunes will rise over the long haul, because the invisible hand is working its magic on markets. It is creating a whole new class of millionaires and no one—not even the president—can unmake that reality.
3 Solar Stocks to Be Bullish On
Despite my long-term bullishness on renewable energy stocks, I’m not blind to the current situation. Solar stocks were down last week.
Solid companies, like First Solar, Inc. (NASDAQ:FSLR), Canadian Solar Inc. (NASDAQ:CSIQ), and JA Solar Holdings Co., Ltd. (ADR) (NASDAQ:JASO), saw their valuations slashed by tens of millions.
Chart courtesy of StockCharts.com
That said, I don’t expect this pessimism to last. I would turn bullish on these stocks immediately, because the underlying trends are too powerful to be altered by such a cosmetic change in circumstances.
Think about it: Everyone knows the Paris Agreement was non-binding.
Sure, it established a strong set of reporting requirements, but there was no penalty for missed outcomes. It was completely toothless. (Source: “Paris Climate Agreement Q&A,” Center for Climate and Energy Solutions, last accessed June 7, 2017.)
With that in mind, let’s ask ourselves an honest question. What exactly does Trump’s exit from the Paris Agreement change?
Perhaps it changes how America is viewed by the rest of the world. We may have weakened the deal as a whole. We may have strengthened the deal…I don’t know.
Here’s what I do know: First Solar’s business didn’t shrink by six percent in a week.
Unlike the solar tax credits, which were a “live or die” situation, the Paris Agreement didn’t have the power to change business conditions overnight.
The only reason people are panicking is that they associate the words “climate” and “solar energy.” I’m not saying those two things aren’t linked, but that doesn’t mean you should stop thinking rationally.
Understand what fear does to asset prices.
It causes a brief drop, before evaporating and leaving behind the truth. And the truth, in this case, is that solar stocks were not materially affected by Trump’s decision to withdraw from the Paris Agreement.
After all, Congress renewed those tax credits for five years.
So, take another look at FSLR, CSIQ, and JASO, and consider a fresh possibility: Maybe the drawdown is an opportunity, not a disaster. Maybe you can pick up solar stocks on the cheap, rather than watching them recover from the sidelines.
This article was originally published by Profit Confidential and was republished with permission.