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Investing in Cheap Solar Stocks

Written By Jeff Siegel

Posted May 12, 2016

sedgeThis has not been a good year for solar investors.

From the fall of the SunEdison (NYSE: SUNE) dynasty to a handful of disappointing earnings from the major solar players in the space, solar investors are sitting on some heavy losses right now.

Of course, the industry doesn’t live and die by the actions of one bankrupt company. If it did, the solar industry would’ve fallen off a cliff after the Solyndra debacle. But of course, that didn’t happen.

Now at the moment, the market is punishing some decent solar stocks due to the actions of a few.

It is true that the stench of the SunEdison fiasco has blanketed the entire sector. And for those heavily exposed to solar, certainly you’ve seen better days. But there is a silver lining.

While there’s more than enough reason to shun SunEdison, and perhaps SolarCity (NASDAQ: SCTY), at least for the moment, there are a few other solar stocks that are trading at some pretty cheap levels right now.

SolarEdge (NASDAQ: SEDG) is one.

The stock took a serious nosedive this week despite beating Q3 expectations. It joined SolarCity in a double-digit slam, yet the selloff was completely overdone.

Sure, the company’s outlook was below consensus, but that shouldn’t have been enough to drag it down so far. And I’m not the only one that thinks this way.

Edwin Mok from Needham & Co reiterated his buy on SolarEdge, writing …

Going into the call, we believe investors were acutely aware of slowed demand in the U.S. residential market, which was confirmed by this and SCTY’s [Hold] reports. However, we believe the larger players are seeing greater pressure due to the tightening of capital needed for solar leases, and SEDG has done a good job broadening its customer base, bring SCTY down to low-teens-% in MarQ while a distributor became the largest customer. Moreover, the U.S. commercial business continues to grow in MarQ. Mgmt is targeting commercial to grow to a similar size as the residential business by the end of 2017, highlighting the strong momentum of the business. 

Jeffrey Osborne from Cowen & Co also reiterated his outperform rating on SEDG, writing …

SolarEdge looks positioned well for the short-term slowdown in residential due to the continued diversification of its customer base and the increased growth in the company’s commercial segment. The top 5 U.S. residential installers make up less than 50% of overall sales, with Solar City making up 10%. The company has been looking to the 15-20 largest second tier players as a focus for growth, who have been picking up market share from some of the struggling larger players according to our analysis of installation trends. Management highlighted that a more fragmented installer market results in more pricing power for SolarEdge as a component supplier. The growth of the higher margin commercial segment has slightly outpaced residential growth, and is mostly U.S. focused. This strength coupled with the possibility of utility scale inverters launching over the next 1-2 years and new markets such as Japan and Australia further reduces SolarEdge’s reliance on the U.S. residential market.

I tell ya, SolarCity’s results really did affect the entire sector in a serious way.

Not only did we see an irrational sell-off with SolarEdge, but Vivint Solar (NASDAQ: VSLR), the company that’s still licking its wounds from getting royally screwed by SunEdison, is also trading at exceptionally low levels right now.

Although Vivint is now in the process of digging out of a hole created by a bad deal it inked with SunEdison, the stock is seriously undervalued at current levels. This is at its very least a $4 stock, but you can buy it right now for less than $3.00.

SunPower (NASDAQ: SPWR) is also looking pretty cheap right now, trading below $17. So if you’ve been waiting around to get some exposure to the solar space, SolarEdge, SunPower, and Vivint Solar are all bargains.