2 Solar Stocks to Watch as Election Sparks Uncertainty

Key Points

• Solar stocks, including First Solar, face pressure from potential policy shifts under a Trump-led administration.
• The Invesco Solar ETF has faced significant pressure, dropping over 7% this month and 35% year-to-date, reflecting investor concerns about the solar sector's outlook amidst potential policy shifts.
• First Solar boasts a solid financial position and a compelling valuation, with analysts projecting a significant upside despite sector challenges.

The election of Donald Trump has reignited speculation about the future of clean energy stocks, particularly in the solar sector. With a Republican-controlled White House and likely GOP majorities in Congress, investors are bracing for potential changes to the Inflation Reduction Act (IRA), which has been pivotal in driving clean energy growth. The Invesco Solar ETF, a key barometer for solar stocks, has dropped over 7% this month and is down 35% year-to-date, reflecting market concerns about the sector's outlook.

Adding to the pressure are fears that Trump's policies, such as tax cuts and tariffs, could reignite inflation, paired with already high interest rates, have created a harsh environment for clean energy companies. While these challenges have weighed heavily on solar stocks, they could also open the door for opportunistic investors to explore beaten-down names in the sector.

Why Solar Stocks May Still Shine

Despite concerns, clean energy may retain support under the Trump administration. A significant portion of the Inflation Reduction Act’s benefits, around 75%, has gone to Republican districts, prompting some GOP lawmakers to advocate for preserving its incentives. Additionally, Elon Musk, a Trump supporter and clean energy advocate, could influence policies to maintain or adapt, rather than eliminate, key incentives.

2 Solar Stocks to Consider

First Solar: A Global Leader in Advanced PV Solar Solutions

First Solar NASDAQ: FSLR is a global leader in photovoltaic (PV) solar energy solutions, specializing in advanced thin-film PV modules and large-scale solar power plants. The company has been instrumental in adopting utility-scale solar energy worldwide. Known for its robust financial health, First Solar maintains a solid balance sheet, evidenced by a current ratio of 2.14, and has effectively managed costs to sustain profitability and impressive margins.

In Q3 2024, First Solar reported revenue of $887.7 million, a 10.7% year-over-year increase, though its EPS of $2.91 missed analyst estimates by $0.19. Despite sector headwinds, First Solar's valuation appears attractive after a sharp 27% decline over the past six months. The stock now trades at a P/E ratio of 15.67, with a forward P/E of just 8.85, suggesting potential value relative to its strong earnings growth of 41% over the last five years. These metrics highlight a compelling risk-reward profile for long-term investors.

Analysts certainly think so. Based on 27 analyst ratings, the stock has a Moderate Buy rating with 24 analyst ratings a Buy. Notably, the stock's consensus price target of $280.50 forecasts a whopping 53.5% upside potential. 

Invesco Solar ETF: Diversified Exposure to the Solar Industry

For investors seeking diversified exposure to the solar industry, the Invesco Solar ETF NYSE: TAN offers a compelling option. Tracking the MAC Global Solar Energy Index, TAN provides a broad investment across many solar-focused companies, including solar power equipment manufacturers and service providers.

The ETF's global diversification includes nearly 50% exposure to United States companies, with additional holdings in regions like Israel, Germany, and the Cayman Islands. Notable holdings include industry leaders like First Solar, NextTracker, Enphase Energy, and Sunrun. With $842 million in assets under management and an average daily trading volume of 1.2 million shares, TAN offers a stable, liquid, and diversified approach to investing in solar energy’s long-term growth potential.

Opportunity Amid Uncertainty

The market’s reaction to Trump’s election has been swift and negative for solar stocks, but the sell-off might offer a chance to buy quality names at discounted prices. With bipartisan benefits from the IRA and influential voices like Elon Musk favoring clean energy, the sector’s long-term prospects may remain intact, even in a shifting political landscape.