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Top 5 Tips for Investing in Solar Stocks

Reading time: 6 minutes

According to research conducted by the International Energy Agency (IEA), solar energy is growing faster than any other power technology in the world. Bloomberg New Energy Finance (BNEF) has estimated that between 94 GW (Gigawatts) to 111 GW of solar panels would be installed in 2018, with further growth expected to be between 107 GW to 121 GW in 2019. With expectations for such growth, the top solar companies stand to benefit significantly, as do investors who invest their money into solar stocks.

With solar powered products becoming even more affordable, and an ever-increasing number of people adopting it to fulfill their daily needs, solar power stocks do present a viable investment instrument. Currently, solar energy investors have an incredible opportunity to invest in stable yet powerful solar companies, who are prepared to reach their full market potential. With a potential market capitalisation of trillions of dollars, and one of the highest growth rates among all sectors, here's a look at the top 5 tips for investing in solar energy stocks.

Look for Solar Firms With a Proven Track Record

According to estimates, demand for solar energy will grow significantly by 2020, across the globe. Yet the most widely traded solar stocks only focus on a few companies. One approach to minimise risk is to research the various solar power and solar panel stocks available before making an investment. This will give you an idea about the track record of the company and its products. Beyond researching the company itself, you could also study research and innovations that the company has undertaken. Visionaries like Elon Musk are planning to run everything with solar energy. Solarcity, a subsidiary of Elon Musk's Tesla, is one of the top performing solar companies. Vivint Solar, Yingli Solar and Sunpower Corporation are other top solar companies with proven track records.

Know your Technology and Business

Innovations are taking place in the green energy arena almost every day. Companies with potential for innovation stand out from the pack. To make a successful investment decision, therefore, you need to study, understand, and compare how their technology works, regardless of whether the company is a solar panel manufacturer or an installer. The right tech can ultimately make the difference between success and failure, and not just for solar companies.

For example, Solar Roadways is a firm that develops solar panels for roads, with an aim of creating 'smart' roadways. SunPower Corporation manufactures solar panels that mainly cater to the residential sector. The residential market for solar panels has seen steep growth due to rising fossil fuel prices and the decreasing cost of solar panels.

Firms catering to the commercial solar market are, however, more dependent on governmental policies. Solar power companies like Solarcity and Vivint Solar purchase panels from manufacturers and offer installation services. With all the different needs they address, these solar stocks also yield different rates of return. Newer technologies related to solar batteries and other forms of energy storage may also be considered for investment. So, make sure to study extensively and fully understand the various aspects of the green energy market first, before investing in it.

Stay up to date with national policies

The solar energy sector is highly controlled by policies and incentives around the globe. Staying updated with changing policies and subsidies can help you to divert your resources to maximise returns, and minimise losses. For instance, China recently slashed its subsidies to the solar market, which led to a decline in solar stocks. Top solar companies such as Vivint and Solarcity will cease to receive 30% tax credit as a result, which may lead to a higher cost for the consumer, which will in turn affect their share price. However, geographic diversity can even out the risks associated with local policies and incentives.

The US government has imposed a 30% import duty on solar panels. This translates to higher costs for the consumer, and is expected to slow the shift to renewable energy within the US. These developments are likely to exert pressure on the share prices of Solarcity and other solar firms. So make sure to check if the company you are investing in can be affected by a simply policy shift, or whether its presence across various regions will mitigate such adverse effects. In any event, it is important to stay updated in regards to current policies, incentives, and the expected changes.

Track financial reports

Anyone who invests in stocks knows that you need to keep track of cash flow, profits, losses, and other aspects of their quarterly financial statements. Most solar firms are in their nascent stages, so monitoring financial statistics is a must for new solar investors. Most of the up and coming solar companies have the potential to absorb their share of debt. A firm with heavy debt is a bad sign if you are looking to invest in that firm. Keep track of the debt/equity ratio and avoid investing in solar stocks with huge debt, as compared to equity. Of course, most solar companies have just started out, so it would take them some time to steady their balance sheets.

Recognise the risks

Solar stocks showcase promising potential, but also knowing about the risks associated is a good idea. Companies like Solyndra, Evergreen Solar, Suntech Power, and more demonstrate how risky solar company stocks can be. Traders should therefore consider trading solar ETFs and ETF CFDs to evenly spread the risk across their solar portfolios. For example, you might consider investing in a solar company that operates within a diverse number of countries, rather than one that is focused on a single country. It is also important to measure the potential and risks of the solar stocks you plan to invest in. As a beginner, you might consider investing in well-established solar companies like Solarcity, Sunpower, Vivint, or Solar Highways.

Here are some examples of solar CFDs you can invest in with Admiral Markets:

  • SMA Solar Technology AG CFD (S92)
  • Scatec Solar ASA CFD (SSO)
  • Canadian Solar Inc CFD (CSIQ)
  • SolarEdge Technologies Inc CFD (SEDG)
  • Solar Capital Ltd CFD (SLRC)
  • First Solar Inc CFD (FSLR)

Solar stocks are booming despite the slowdown due to policy changes in China and the US. The solar energy sector has witnessed growth in the last decade, with potential for further growth. Global initiatives like the International Solar Alliance have increased the significance of green energy worldwide. This sector is going to witness steep growth, which makes this a potentially favourable time to invest. But don't forget to do your research first before investing your hard-earned money into any solar stocks.

Invest In Stocks & ETFs

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Risk Warning

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.