Another Dubious Solar ETF Rally

Home to a combined $61 million in assets under management, the two ETFs devoted to solar stocks are in rally mode Thursday. Shares of the Guggenheim Solar ETF (NYSE:TAN), home to $49.6 million of the aforementioned $61 million in AUM, are higher by nearly 11 percent on volume that is already close to five times the daily average.

Shares of the Market Vectors Solar Energy ETF (NYSE:KWT), which like TANreverse split its shares last year, 10.5 percent on volume that is more than five times the daily average.

The catalyst, as Barron's reported, is news that a unit of Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) will pay between $2 billion and $2.5 billion for two SunPower (NASDAQ:SPWR) solar projects. The projects, located in Southern California, are currently under construction.

Arguably, what is going on with TAN and KWT today is that investors are over-reacting to the faintest hint that Buffett, one of the greatest value investors of all time, is taking an interest in the solar sector. Shares of SunPower are higher by 41.3 percent as of this writing, and rightfully so. An asset sale valued between $2 billion and $2.5 billion means SunPower is selling something to Berkshire Hathaway that is worth at least double the former's current market value, maybe more.

As is often the case with solar stocks, traders apply news that is specific to one of the group's constituents to entire sector. The SunPower news sparked some increased activity in First Solar (NASDAQ:FSLR) call options, according to Options Monster. That despite the fact that the Buffett/SunPower news has nothing to do with First Solar, the largest U.S. solar company.

And it is the arguably unjustified rally in First Solar that is leading TAN and KWT higher. TAN allocates 10.1 percent of its weight to that stock, making it that ETF's largest holding. First Solar is KWT's third-largest holding with a weight of 9.3 percent.

Wondering about SunPower? That stock is merely TAN's twelfth-largest holding with an allocation of 4.25 percent. In KWT, SunPower is the No. 13 holding with a weight of just 3.8 percent.

Here is the tell that Thursday's ebullience in TAN and KWT is overdone. In 2011, France's Total SA (NYSE:TOT), Europe's third-largest oil company, paid $1.3 billion to acquire a 60 percent stake in SunPower. Since that deal was announced, SunPower shares plunged 74 percent through the end of last year. Shares of Total are down today despite news that Berkshire may pay nearly twice the value of Total's SunPower stake for just two of SunPower's projects.

For more on ETFs, click here.