The solar industry has proven to be an impressive outperformer in 2020. The outsized gains in solar stocks have been integral to reenergising the energy sector. SolarEdge’s [SEDG] share price, for instance, has tripled this year to date, rallying 204.3% so far in 2020 to close at $309.80 on 20 October. Can solar stocks continue to outperform amid such uncertain markets?
Sustainable funds attracted record inflows in the first quarter even as markets tumbled. Furthermore, Joe Biden, the Democrat candidate for the US presidency, has pledged unprecedented action in regards to green energy policies.
The Invesco Solar ETF [TAN] has outperformed not only the S&P 500, but also the Nasdaq and Dow Jones Industrial Average. The solar fund has climbed 152.4% so far in 2020 and, on 20 October, it hit its highest point since 2011. In the same period, the S&P 500 has climbed just 6.9% and the Nasdaq 28.4%, while the Dow Jones is down 0.8%.
Unsurprisingly, the outsized returns of solar stocks have more than outpaced those of the energy sector. As of 20 October, the iShares Global Energy ETF [IXC] is down 45.9% year-to-date, hit hard by sinking shares among oil majors.
In fact, energy has been the worst performing sector in the US this year.
“The energy sector has entered a consolidation phase, which will see many firms either shrink their balance sheets or disappear,” Bob Ryan, chief commodity and energy strategist at BCA Research, told the Financial Times.
“The energy sector has entered a consolidation phase, which will see many firms either shrink their balance sheets or disappear” - Bob Ryan, chief commodity and energy strategist at BCA Research
“The survivors will have to navigate a rapidly changing landscape in which renewables are gaining market share and the long-term viability of fossil fuels is being questioned,” he added.
That rapidly changing landscape already has many supporters. “People love solar. It’s gotten economic,” Jim Cramer, host of CNBC’s Mad Money show, told listeners in mid-October.
After all, solar is a cheaper alternative to fossil fuels, according to the International Energy Agency (IEA). In its 2020 World Energy Outlook, the agency forecasted that oil demand will plateau by 2030, while also pointing to other viable alternatives.
“I see solar becoming the new king of the world’s electricity markets. Based on today’s policy settings, it is on track to set new records for deployment every year after 2022,” Dr Fatih Birol, executive director at the IEA, said.
“I see solar becoming the new king of the world’s electricity markets. Based on today’s policy settings, it is on track to set new records for deployment every year after 2022” - Dr Fatih Birol, executive director at the IEA
Solar stocks in the spotlight
As a “blue wave” election outcome looks to be increasingly priced into the markets, demand for solar and renewable energy assets could continue to increase.
SolarEdge’s share price is up 24.48% so far in this month (through 20 October), while SunPower’s has shot up 41.4%. Sunrun, however, is faring less well having dropped 18.8%.
Despite this recent dip, Sunrun’s share price is the best performing out of its peers in the year-to-date — it has gained a massive 353.1% as of 20 October. Meanwhile, SunPower’s 246.2% year-to-date gain has also outshone SolarEdge.
Sunrun's YTD 2020 gains
Unlike its peers, Sunrun’s share price is rated a Buy among 13 analysts polled by MarketBeat, with a price target of $55.77 — a 10.9% fall from its 20 October close. The residential solar installer has become the unquestioned king of the US solar market since recently completing its acquisition of Vivint Solar.
Meanwhile, shares in SolarEdge and SunPower are both rated a Hold by MarketBeat, with nine analysts rating SolarEdge’s share price a Hold, and eight others considering it a Buy. It has an average price target of $167.47, representing a 45.9% fall from its 19 October close.
SunPower, on the other hand, has a price target of $10.93, which would represent a decline of 34.7% from 20 October.