Last Friday’s Digest began like this …
Look at the chart below. I’ve whited-out the name of the underlying investment.
Any guess as to what it is? Perhaps a high-flying tech stock? Something 5G-related? Or perhaps a marijuana company?
You’d be surprised …
The chart above belongs to the Invesco Solar ETF (TAN). And it just had a big breakout.
The issue went on to explain how TAN is up more than 70% since its December low, which led to the following takeaway:
And remember — this is for an ETF, which means it holds a basket of solar stocks. For an entire group of stocks to climb a collective 70%+ in such a short period of time is highly unusual.
As I’m sure you’re aware, this has been a volatile week for stocks. On Monday, the Dow plummeted over 900 points at its worst point. Tuesday saw a rally. On Wednesday, the Dow swung more than 600 points at its widest span. Yesterday, markets went back into rally mode, with the Dow climbing nearly 1.5%. As I write Friday morning before the markets open, it’s anyone’s guess as to where we’ll end up at the end of the day.
All in all, the S&P is down nearly 3% since late July.
So, how have TAN and solar investments fared over that same period? Well, see for yourself.
Below is chart comparing TAN’s market performance to the S&P 500 beginning one week ago on Monday.
At the time of this writing, while the S&P has fallen nearly 3% in that span, TAN has soared almost 11%.
When a group of stocks performs this strongly at the same time the broad market falls, it’s a sign that the sector’s trend is incredibly strong. The pros have a name for this dynamic — “acting well.”
Typically, when the broad market stabilizes and recovers, the sector that “acted well” during the correction really takes off.
Quite simply, we believe solar is on the verge of taking off.
As we wrote one week ago:
Solar is making people rich. Yet very few investors realize this is happening … which means there’s still plenty of room for huge gains …
I’m confident we’ll look back at April/May of 2019 and say that’s when investors “flipped the switch …”
That’s when the age of Solar Stock Millionaires began … when, with little fanfare, a massive wave of wealth creation began to form … when people started making fortunes from one of the biggest energy revolutions in human history.
This is a chance to be a part of solar’s ascendency … from the beginning.
To capitalize on this chance, today we return to our macro investing expert, Eric Fry — or “Mr. 1,000%” as he’s referred to at InvestorPlace. The name comes from his 25-year career of racking up more 1,000% gaining stocks than anyone we know of in the financial newsletter industry.
As Eric writes in today’s essay, “solar’s long, disappointing history is over. A new history has begun.”
It’s our belief that solar is going to create additional 1,000%-gaining stocks for Eric’s track record, and it’s our hope that you’ll be a part it.
I’ll let Eric take it from here.
The Sun Shines on Solar Power
One decade before Thomas Edison invented his revolutionary light bulb, a fellow named Augustin Mouchot had developed a revolutionary invention of his own — the “solar concentrator.”
This device harnessed the sun’s energy to power a steam engine. Mouchot demonstrated the unique power of his concentrator at the 1878 Universal Exposition in Paris.
He wowed the crowds by capturing the sun’s energy to make ice. That clever trick was mind-blowing stuff in 1878.
And yet, Mouchot did not become a household name. His invention did not propel him to the sort of fame and fortune that Edison achieved.
While Edison stacked success upon success to amass a $200 million estate in today’s dollars, Mouchot’s invention would fade into obscurity … and produce nothing more for him than abject poverty.
In 1907, a reporter for The New York Times located Mouchot in Paris. The reporter was shocked to discover that the 82-year-old “father of solar power” was “alone in the world and reduced to beggary after a long life of labour.”
“Yesterday,” the July 28, 1907, Times story related, “[Mouchot] was rudely awakened from his studies by the sheriff, who came to seize the furniture that his creditors’ claims might be satisfied.”
Mouchot would live another five years in poverty, before dying in 1912, alone and forgotten, at the age of 91.
Who knew that Mouchot’s sad story would become a cautionary tale for anyone who hoped to make a fortune in the solar power industry?
For most of the 153 years since Mouchot invented his solar concentrator, the solar power industry has been a graveyard for capital.
To be sure, the industry has continued to progress and innovate, but it hasn’t created generations of “solar millionaires” or landed any “solar entrepreneurs” on the cover of Time magazine.
Although solar power has always offered the tantalizing promise of huge rewards, it has usually delivered the disappointing reality of meager profits … or large losses.
But solar’s long, disappointing history is over. A new history has begun.
Solar power is no longer a profitless curiosity. It is a profitable industry that is attracting robust global demand. It is an idea whose time has come … especially for investors.
Last week, when I addressed the annual Sprott Natural Resource Symposium in Vancouver, Canada, I focused my presentation on solar power … or, rather, the imperative to invest in solar power.
I called it one of the “must-own” sectors of the market.
Just moments before I took the stage, SunPower Corp. (SPWR) – one of the solar stocks I recommended in our July issue — was delivering key evidence to corroborate my thesis. It announced surprisingly strong operating results for the second quarter … and signaled more strength ahead.
This upbeat news propelled the stock to a quick 30% gain, while also providing the newest sign that the solar power industry is entering a “Golden Age.”
You see, SunPower’s surprising earnings report was not an outlier. It followed close on the heels of strong quarterly reports from other companies in the industry, like SolarEdge Technologies Inc. (SEDG), LONGi Green Energy Technology Co. Ltd. (Shanghai: 601012), Enphase Energy Inc. (ENPH), First Solar Inc. (FSLR), and JinkoSolar Holding Co. Ltd. (JKS).
Like these leaders of the industry, SunPower is finally delivering on its potential … and the stock is responding accordingly.
Prior to the launch of Fry’s Investment Report two months ago, I had published several bullish forecasts on SunPower and urged subscribers of my riskier, more speculative newsletter, aptly named The Speculator, to purchase call options on the stock.
I’ve reiterated my bullish outlook many times since my initial recommendation, including three months ago when the stock was still trading below $7.50. In a May 2 alert, I predicted that “SunPower is likely to show a revenue burst in the second half of 2019 … The stars seem to be aligning for SunPower.”
To detail my reasoning, I explained:
• Global demand for solar installations could surprise on the upside in 2019. The year is already off to a very strong start.
• The nascent energy storage boom is not only increasing demand for new solar installations, but it is also increasing the revenue-per-installation for a company like SunPower. It announced recently that one-third of its order backlog includes solar-plus-storage, and that these installs generate about 40% more revenue than those without storage. SunPower offers cutting-edge solar-plus-storage solutions for each of its three main marketplaces: residential, commercial and industrial (C&I), and utility-scale.
• With every day that goes by, SunPower draws closer to the end of what has been a very expensive long-term polysilicon supply contract. The company signed the contract a decade ago, when polysilicon prices were quite high, and has been obligated to take delivery at that cost ever since. The losses stemming from that contract are not insignificant. They totaled $87 million last year, equal to about $0.60 a share. This disastrous contract ends at the end of 2020. As that sunset approaches, investors may begin awarding a higher share price to SunPower.
SunPower’s strong earnings report validated my positive outlook for the company. And as expected, energy storage is contributing to SunPower’s resurgent growth.
The company states that its C&I segment is booming, thanks partly to its solar-plus-storage product. More than one-third of SunPower’s C&I customers are “attaching” the company’s Helix storage solution to their solar installation orders. That trend is boosting the company’s market share and profit margins.
CEO Tom Werner reported the following:
In C&I, we maintained our number one position as volume rose 50% sequentially. We see strong second-half momentum … as the balance of the year is more than 75% booked and our pipeline exceeds $3 billion … Our Helix storage solution is selling well. And our pipeline now exceeds 135 megawatts with average attached rates of approximately 35% over the last 12 months. We also recently commissioned our largest multi-site solar-plus-storage project to date with Whole Foods.
Globally, the deployment of battery-based energy storage solutions (BESS) is ramping up quickly. According to JPMorgan, the cumulative installed base of BESS will soar 100-fold between now and 2030!
SunPower is well positioned to profit from this robust growth trajectory.
The wave of good news flowing from SunPower’s headquarters has propelled the stock to a 100%+ gain during the last three months.
Better still, the SunPower call options I recommended to my Speculator subscribers last year have soared 500%. And yet, I’m expecting larger gains to come … even in the midst of a full-blown trade war.
Remember, SunPower operates manufacturing plants here in the United States and has gained an exemption from tariffs on the panels it manufactures overseas. So, it enjoys a uniquely competitive position, relative to other solar panel manufacturers.
The stock’s big gain over the last few days suggests that the company is finally winning over some of its skeptics. Some of those skeptics are short sellers, who have been taking a beating for betting against this stock.
SunPower is what professional investors would call a “crowded short.” An unusually large number of investors have been shorting this stock. The most recent tally shows that the stock’s “short interest” is equal to 27% of the float — i.e., the outstanding shares that trade freely.
That’s a big number. For perspective, the short interest on Apple Inc. (AAPL) totals only 1% of the float. The Netflix Inc. (NFLX) short interest is somewhat higher at 4% of the float. But neither of those numbers is anywhere close to 27%.
A short interest that is this large can be good news for ordinary investors. That’s because a large short interest can sometimes produce a “short squeeze” — causing a stock to soar higher. It works like this: As a heavily shorted stock moves higher, short sellers lose money. As they lose money, they look to reduce their short position or close it out altogether. The only way to do that is to buy back the stock they’ve sold short.
This buying can push the stock even higher, causing even more losses for the remaining short sellers. Eventually, they will want to end their pain by buying the stock also, which can push the stock higher still. A “buying panic” ensues that causes the stock to move very high very quickly.
I assume the last few days of upward price movement triggered a lot of short covering that pushed SunPower higher. But the short interest remains very elevated. So, this group of short sellers could add fuel to any future rally in the stock.
SunPower is on track to deliver on its enormous potential.
A prosperous solar sector is no longer a mere article of faith — and the industry’s robust growth path is no longer a distant hope.
It is a reality.