Solar stocks kicked off 2013 with a sharp rally, prompted in part by last week's news that a company controlled by Warren Buffett's Berkshire Hathaway Inc would pay up to $2.5 billion for two SunPower solar projects in California.
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This week, the stocks retreated after many investors and analysts called the moves overblown, making the Buffett rally look more like a short-term bump.
"The Buffett-SunPower deal is good news ... but individual investors should not interpret it as a buying signal for solar stocks," said Yves Vaneerdewegh, who manages the Luxembourg-based 11 million-euro ($14.37 million) Quest Cleantech Fund. He added that the sector's recovery may take much longer, and that stocks could tumble dramatically once again.
The rally, which started in November as China signaled willingness to prop up its ailing solar sector, was bolstered last week by the resolution of the U.S. "fiscal cliff" as well as a slight uptick in the price of polysilicon, the key raw material in photovoltaic solar panels.
J.P. Morgan analyst Christopher Blansett said in a research note on Monday that viewing SunPower's deal with Buffett's MidAmerican as a positive development for the whole industry "doesn't make any sense ... no other solar PV company will benefit from this sale." He advised clients that now was "a good time to take short positions" in solar stocks.
The MAC Global Solar Energy index climbed 17.5 percent in he first three trading days of the year, but has since slipped 2.5 percent. SunPower shares soared 55 percent last week, but have retrenched 8 percent since then.
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TOO MUCH CAPACITY
Diminishing government support in the world's top solar market, Europe, and a massive oversupply of panels that sent selling prices into a tailspin have slammed the solar manufacturing industry in the last two years. The industry crisis has forced many players to file for insolvency, notably former sector leaders Q-Cells and Solon SE in Germany.
By the end of 2012, there were fewer than 150 global solar module and cell companies, down from more than 750 in 2010, research firm IHS said, adding that 2013 would see further consolidation.
"We need to see more consolidation in the sector to get more optimistic. There is far too much capacity in the market," said Alastair Bishop, a fund manager at BlackRock, the world's largest money manager.
That consolidation could be delayed, analysts said, by efforts of Chinese provincial governments to support their cash-strapped solar manufacturers in order to preserve jobs. Such moves would help individual companies and stocks, but keep pressure on the broader solar panel market.
Oversupply has sent solar module prices down 66 percent in the last two years, according to GTM Research, and manufacturers have struggled to cut costs to keep up with those declines. GTM estimates that global solar product supply will exceed demand by about 35 gigawatts (GW) annually over the next three years.
Investors in solar stocks, the darlings of Wall Street five years ago, have been burned. The MAC solar index slid 80 percent from the beginning of 2011 until the end of 2012, with many stocks now trading below book value.
"They have become an easy playing ball for traders and hedge funds," said Thiemo Lang, who manages $900 million in cleantech assets at Zurich-based Sustainable Asset Management AG. "I don't see the profitability of the companies improving much."
But after months upon months of weakness, some in the market said the solar sector could at least start to recover toward the end of this year.
"The turn is coming," said Shawn Kravetz, president of Boston-based Esplanade Capital, which invests in solar stocks.
He pointed to last month's announcement by Hanwha SolarOne Co Ltd that Bank of Beijing Co Ltd would provide it with a credit line of about $475 million. He also cited firming polysilicon prices and last week's projection by U.S. installer SolarCity Corp that its deployments would rise 60 percent this year.
Shares of SolarCity have more than doubled since the company's stock market debut on Dec. 13.
Still, Kravetz called last week's solar stock moves "too extreme," saying his firm took the opportunity to sell its stake in SunPower. One solar stock favored by Kravetz is wafer maker and project developer MEMC Electronic Materials Inc, which stands to benefit from falling panel prices.
"We love businesses that benefit from pain," he said. ($1 = 0.7654 euros)