The Biggest Reason We're Bullish on Solar Energy Stocks in 2016

solar energy stocksSolar energy stocks outperformed the rest of the energy sector by a huge margin this year.

The Bloomberg Global Solar Energy Index has beaten the NYSE Arca Oil & Gas Index by 22.2% in 2015. High-volume solar energy stocks like SunPower Corp. (Nasdaq: SPWR) and First Solar Inc. (Nasdaq: FSLR) have soared 19.1% and 50% this year, respectively. The Dow Jones has fallen 0.9% in the same time.

And according to Money Morning Global Energy Strategist Dr. Kent Moors, 2016 will be an even better year for solar energy stocks.

"There's now a confluence of technology and economy that assures these new energy sources will continue to be adopted and improved upon - at ever-increasing rates," Moors said earlier this month. "This year we'll see alternatives take an outsize position in the sector."

And there's one huge factor that will drive the solar energy sector's growth in 2016...

Why We're Buying Solar Energy Stocks in 2016

The biggest reason solar energy stocks will see big gains in 2016 is growing demand outside of the United States.

You see, the U.S. used to be the only driver of solar energy demand. According to the Solar Energy Industries Association (SEIA), the number of solar panels installed in the United States increased 30% from 2013 to 2014. Meanwhile, market research firm IHS Inc. (NYSE: IHS) reported European solar demand declined by 30% over the same period.

Now the industry is growing faster than ever outside the Western hemisphere. The solar markets in China and Japan are on track to grow 17.3% and 10.4% by the end of the year, respectively. That's because the average price of a solar panel has fallen by more than 60% since 2011 due to their increasingly efficient production.

"Solar power is currently booming all over the world," Moors explained earlier this month. "Last year, China led the charge into clean energy funding, and it will build on its $83 billion investment there in 2016."

But there's another region seeing even higher demand. In fact, one country's solar demand is so high that its government is investing $100 billion to install solar panels over the next several years...

Solar Energy Stocks Will Rise in 2016 Thanks to These Two Countries

Asian countries, especially China and India, will see record-high demand for solar energy in 2016.

China alone will account for more than 25% of global solar panel installations by the end of this year. The country's solar market will keep booming in 2016 thanks to the Chinese government's recently unveiled panel installation quota. According to the government's Xinhua News Agency, the country will install 20 gigawatts worth of solar panels per year through 2020.

"In the United States, a solar project is completed every two minutes - and in China, the pace is even faster," Moors said.

But India is making an even bigger push for solar power as it races to replace its horrible electrical grid. According to Bloomberg, India has missed every annual target to increase electricity production capacity over the last 60 years. On July 30, 2012, the country experienced the largest blackout in history and left 700 million people without power.

The Indian government is investing $100 billion to install 100 gigawatts of solar capacity by 2022. That's up from the country's current capacity of four gigawatts.

According to Moors, the best solar energy stocks to buy to tap into this global shift are solar power exchange-traded funds (ETFs). These baskets of stocks are the best way to cast a wide net over the booming market.

"While it may be difficult to pick out the winners at this early stage, these are a much simpler, less risky way of tapping into the global solar boom," Moors said. "And as the fastest growth in solar power is happening in Asia, investors should focus on funds with significant holdings in China, India, and beyond."

An ETF with a diverse basket of Asian holdings is the Guggenheim Solar ETF (NYSE Arca: TAN). The fund follows the MAC Global Solar Energy Index, which tracks a number of growing Chinese solar firms like JA Solar Holdings Co. Ltd. (Nasdaq ADR: JASO) and JinkoSolar Holding Co. Ltd. (NYSE: JKS). TAN, JASO, and JKS are up 15.8%, 25.6%, and 28.8% over the last three months, respectively.

The Bottom Line: Solar energy stocks had a blockbuster performance in 2015. Now investors are wondering if they'll be able to keep it up in 2016. As demand continues to grow in both the United States and Asia, solar energy ETFs will offer the perfect opportunity to get into this new and exploding energy market at the ground level.

Alex McGuire is an associate editor for Money Morning who writes about energy. Follow him on Twitter for all of the biggest news on solar energy stocks.

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