Solar Stocks take Utilities to the Woodshed

By Greg Guenthner Mar 10, 2014, 12:17 PM 

Once considered among the safest corners of the market, the utilities sector is on the ropes.

Technology is tearing down the grid. Natural gas is one of the culprits. So is wind power. But one alternative energy industry is becoming cheaper and more viable every single day. It’s also on the cusp of becoming a serious competitor to the stodgy, regulated utility group.

I’m talking about solar power.

For more than a year now, I’ve showed you how solar stocks have embarked on massive rallies. In the years since post-financial crisis bull began, solar had been one of the weakest performances. These stocks were considered a complete joke. They weren’t “real businesses”, according to most investors, just some junky, leftover speculations from more decadent times.

Not anymore…

“Utilities seem indispensable. Yet suddenly there is talk on Wall Street of a looming ‘death spiral’ for the business, with solar power being the culprit,” reports The Wall Street Journal. “Subsidies and falling technology costs are making distributed solar power—panels on roofs, essentially—cost-competitive with retail electricity prices in places like the southwestern U.S. As more people switch to solar, utilities sell less electricity to those customers, especially as they often have the right to sell surplus power from their panels back to the utility.”

Of course, price is leading the way. The performance gap between solars and utilities began to widen considerably back in the fall. But even after the huge run-up we’ve witnessed, I still think solar has plenty of room to post even more impressive gains.

Consider this: Despite its recent gains, First Solar Inc. (NASDAQ:FLSR) remains the worst bull market performer in the entire S&P 500, according to Bespoke Investment Group. Since the market bottomed five years ago, FSLR has dropped more than 47%.

That leaves plenty of room to run. And with many analysts expecting wind and solar power output to double within the next five years, the fundamental backdrop for these solar stocks should continue to improve.

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