Solar stocks fall on semiconductor storage and rising metal prices

Everyone gets caught in the rain without an umbrella sometimes. After a shining year of growth in 2020, solar stocks have fallen from their highs with the Invesco Solar ETF ($TAN), an index fund that tracks the solar industry, down nearly 16% in the last month.

The semiconductor shortage claims another casualty

With help from Biden’s massive $2t green-energy proposal, renewable energy stocks surged as much as 80% in 2020.  But solar stocks fell from their peak in Feb due to:

• A shortage in semiconductors – a common material used in the solar industry – is creating supply chain bottlenecks and parts shortages for solar companies.
• Rising prices for steel and aluminum and higher freight costs have increased the cost of production, which is impacting solar company margins.

High valuations left solar stocks little room for error

With solar stocks trading at all-time highs, investors were expecting earnings reports that justified the rise in stock prices. But that wasn’t the case for several solar companies that reported in the past week…

• Enphase ($ENPH) is down 26% since announcing record sales on April 27th due to potential shipment delays from the semiconductor shortage.
• SolarEdge ($SEDG) is down 16% since May 3rd due to lower margins from increased shipping costs

Even Sunnova ($NOVA), a company that claims to have stockpiled parts in anticipation of the shortage, saw its share price fall after beating estimates. While beating earnings estimates is often seen as a good thing, investors were more focused on the outlook for the remainder of 2021.

For investors… Raincheck on solar stocks

While the solar industry has several short-term problems ahead of it, the long-term outlook could be looking bright:

• Short-term forecast ☔: solar panel manufacturers believe that elevated costs for glass, solar cells and freight could last well into the 2nd half of 2021.
• Long-term forecast ☀️: Biden committed to halving U.S. emissions by 2030, and solar installations are forecasted to triple over the same time period.

But not everyone has a short-term horizon – JPMorgan said that it was “encouraged by the demand trends and believes long-term investors should buy stock weakness ahead of expected improvements in supply constraints.”

Learn more: Which parts of the solar supply chain are more lucrative and which parts should you avoid?