Why solar stocks surged this week

Seana Smith and Madison Mills, joined by Oppenheimer senior analyst Colin Rusch, take a look at solar stocks' recent strength following the presidential debate between Vice President Kamala Harris and former President Donald Trump as investors consider how the candidates would change tax incentives for clean energy.

“The stocks' rally is a vote by the investors of confidence that we're not going to see much policy change as we move through and past the election later this fall,” Rusch tells Yahoo Finance, noting that "it's important to remember that solar is incredibly volatile."

The recent stock moves are happening in the context of next week’s expected rate cuts. “As we start to see interest rates drop, it's really the biggest lever in the capital structure for total cost of ownership, and seeing increased confidence in that cost of capital flowing through into the industry suggests that we're going to see some growth,” Rusch says. He notes that the volatility associated with solar stocks will likely persist even with increased confidence in the sector.

Rusch says the manufacturing incentives are “really benefiting First Solar (FSLR) and Enphase (ENPH) more than anyone at this point." He adds that Solaredge (SEDG) could be a stock to watch as it works on new stationary storage products that could compete with Tesla's (TSLA) offerings.

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Naomi Buchanan.

Video Transcript

We saw solar stocks rallying on the heels of that presidential debate and that's been driven by the performance of Vice President Kamala Harris on debate night, boosting investor sentiment as a potential democratic victory is seen as favorable for the clean energy sector.

Will the rally continue?

And if so which stocks are best positioned?

Let's bring in Colin Rush Oppenheimer, senior analyst for more calling.

Great to have you on.

So as we were just talking about, we're expecting gridlock to come for either potential candidate.

So why did we see solar stocks rallying so much?

Well, the the important thing for most industries is consistency of uh policy backdrops.

So the volatility of any sort of incentives or market dynamics is bad for business uh uh or at least a lumpy for business.

And so I think what we were seeing this week was a vote for consistency in policy.

The IRA has been incredibly effective at uh incentivizing both demand and manufacturing in the in the US and seeing that so rally is just uh you know, a vote, I think by the investors of confidence that we're not going to see much policy changes.

We've moved through and past the election later this fall.

So Colin then what does this tell just given the massive swings that we have seen within the sector, the sector has also lost a quarter of its value this year.

How likely is it that some of that volatility will continue through election?

And what does that ultimately tell us about the investment opportunity down the line?

Yeah, I I think it's important to remember that solar is incredibly volatile, um you know, relative to, to almost every other sector in the um you know, in in the market.

And so what I think we're seeing is um you know, one move in terms of the confidence in, in the policy backdrop, but we're also seeing a little bit more confidence in terms of the the interest rate background.

You know, as we start to see uh interest rates drop, it's really the biggest lever in the capital structure for uh for total cost of ownership and seeing um you know, increased confidence in the the cost of capital flowing through into the industry suggests that we're gonna see some growth.

So I think we're gonna continue to see this volatility um that we've always seen with the sector along a line of uh of uh incremental constructive action on the stocks, you know, in terms of top picks that we'd be looking at, we really think that the domestic content, uh you know, ADDers that were, that are benefiting uh developers and, and asset owners like Sunrun.

Uh you know, they're going to be reflected more effectively as we, we get through the balance of this year in the, in the next year.

And the manufacturing incentives are really benefiting for solar and, and face more than anyone at this point.

I want to switch gears a little bit and talk about Tesla and one of your notes, you talk about how on battery side of things, solar edge is looking to compete with next gen battery.

Uh how well positioned are they to be a formidable competitor to Tesla?

You know, so there's a lot of different uh applications for stationary storage, you know, where Tesla has played has primarily been at the residential side and at the utility scale side, uh you know, N phase and solar edge are uh offering products in the residential and small commercial market.

Uh And so as uh solar edge brings the new product to market, they've been a little behind some of the other development in terms of the, the actual um behavior that you need from those batteries in the in the market, in terms of faster charge and discharge and seeing them bring that product uh into the market early next year, I think is a, is a net benefit for the for the platform as they go through some of the financial restructuring that they need to go through uh to really accommodate some of the the the market dynamic changes that we've seen in the last year and a all right, Colin Rush.

Always great to talk to you.

Thanks so much t on joining us this morning, Oppen Heber, a senior analyst.

Thanks Colin.