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You don't want to wait too long to start considering the top solar stocks to buy.
Granted, that may seem odd considering solar stocks as a group have tumbled for nearly two years now as the rest of the market has soared to all-time highs.
The Guggenheim Solar ETF (NYSE Arca: TAN), which holds most of the top solar stocks, has plunged 65% since peaking in April 2015.
Many individual solar stocks have fared even worse. Canadian Solar Inc. (Nasdaq: CSIQ) dropped 70% over that time span. SunPower Corp. (Nasdaq: SPWR) is down 82%. Vivent Solar Inc. (NYSE: VSLR) has fallen 83%.
But that's history. This year the tide will begin to turn for solar stocks as they prepare to meet demand that will more than double installed capacity from 300 gigawatts at the end of 2016 to 700 gigawatts by 2020...
Why Solar Stocks Will Begin a Long March Higher in 2017
Despite the steep price drop in solar stocks over the past two years, the number of solar power installations has continued to grow. According to SolarPower Europe, solar capacity worldwide grew 49% in 2016.
Solar stocks have gone in the opposite direction because of an unfortunate combination of short-term issues. The drop in fossil fuel gas prices made solar power less competitive. Concerns about the phasing out of government subsidies (exacerbated by the election of Donald Trump) have also weighed on the prices of solar stocks.
Making matters worse were the efforts of some companies, like SunEdison, to take on too much debt in an effort to grow ahead of the market.
But those were growing pains. The truth is, solar stocks got ahead of themselves, as technology stocks often do (see: 3D printing).
In the long run, solar power will prosper and reward investors (especially those who buy at the bottom).
Think about it. Solar is a free and abundant energy source. Past stumbles aside, it's an energy source begging to be exploited for profit.
We're seeing the seeds of that future profitability now, both in strong demand and maturing technology.
A report released last month by the McKinsey Global Institute forecast that the proportion of solar and wind energy in the global energy mix will grow 800% from 4% today to 36% by 2035.
And improvements in solar technology will continue to make it cheaper and more efficient - and eventually cheaper to use than fossil fuels.
According to the McKinsey report, the cost of building a solar power plant has declined 90% over the past six years. While many variables are involved, solar already is a competitive choice in many regions. That has eliminated the need for costly government subsidies in many countries.
The last major technological hurdle holding solar back is the need to store energy when the sun is shining for use when the sun isn't shining. And the good news for solar stocks is that even this problem is close to being solved.
Utilities in several states have already begun to test virtual power plants. These facilities use high-tech batteries and computer software to store energy from the daytime for redistribution to the grid at night.
Like other solar technology, the cost of the batteries continues to fall while capabilities rise.
Meanwhile, concerns over global warming add a political incentive to the economic incentive to transition to solar power.
The world's growing appetite for solar power will revive this sector and send the top solar stocks to buy on a years-long bull run.
These solar stocks should be at the top of your shopping list...
The 3 Top Solar Stocks to Buy Now
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First Solar Inc. (Nasdaq: FSLR)
First Solar shares are down more than 60% since hitting $74.29 in March 2016. On Friday, FSLR was trading at $28.40. When the thin-film panel company reported earnings last month, it beat Wall Street expectations and raised guidance, but the stock took another beating because of a $729 million pre-tax charge and a year-over-year 56% decline in revenue. Grim, right?
As bleak as that sounds, a closer look reveals a company playing a long game to reverse its fortunes. In November 2016, First Solar announced plans to cut back its workforce by 27%, or 1,600 employees, to help trim costs.
But the key to future gains for FSLR is its investment in its advanced Series 6 panel technology, due to launch in 2018.
The Series 6 tech is so good the company canceled its plans to launch its Series 5 panels in favor of accelerating development of Series 6. This new tech is 40% cheaper to produce than the Series 4 modules it sells now, while offering higher power output than panels from rival manufacturers.
Meanwhile, First Solar's strong balance sheet -- $2 billion in cash and just $160 million in debt at the end of last year - will tide it over.
That means FSLR stock will lag in 2017, but will pop in 2018 and beyond. According to FactSet, most of the one-year price targets for First Solar fall between $34 and $40, representing implied gains of between 20% and 40%.
SunPower Corp. (Nasdaq: SPWR)
SunPower stock has also taken an ugly tumble, dropping 85% from its 2014 high of $42.07. But like First Solar, SPWR is working on its comeback.
SunPower already holds a dominant position in the U.S. market - it's No. 1 in commercial installations and No. 2 in residential.
SunPower is also preparing to deploy a new, cheaper panel technology with its P-Series, which will pay off in 2018. SPWR is well-positioned to capture a lot of the expected growth in solar installations next year.
Planning ahead, SunPower already has forged partnerships on solar projects with companies like Toyota Motor Corp. (NYSE: TM) and NV Energy. Plus, French energy giant Total SA (NYSE ADR: TOT) owns 60% of SPWR, providing both financial backstop and a door to international projects.
As with First Solar, SunPower stock figures to have a bumpy 2017 followed by a breakout in 2018. The average one-year target for SPWR, according to FactSet, is $8.26 - an implied gain of 35.8%.
8Point3 Energy Partners LP (Nasdaq: CAFD)
The stock has fallen 37% since its June 2015 IPO, dragged down with the rest of the solar sector.
The two partners sell their finished solar projects to 8Point3 to recover capital; 8Point3 runs the projects and pays out its profits in dividends to shareholders. This structure gives CAFD an impressive dividend yield of 8%.
8Point3 will benefit from the success of its two sponsors, which have the flexibility to sell projects to the yieldco when it makes sense and sell to others when it doesn't.
While CAFD stock is expected to appreciate, the reason to own it is that it will be a reliable cash cow for years. The company owns 642 megawatts of solar projects with an average contract of just over 20 years, assuring steady payouts. And as more projects are added, that dividend will increase. Better still, yieldco dividends are tax-free.
The average one-year price target for CAFD is $16.81, nearly a 30% gain from the current price of $12.95. And that's not even counting the 8% dividend yield.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.