End of lockdown clouding solar stocks

The stellar surge in solar-energy stocks is faltering as investors turn their focus to bargains that may benefit from the end of lockdowns.

Following a jump of more than 230 percent in 2020, the Invesco Solar ETF has fallen 18 percent this year, with members of the fund, including Sunnova Energy International Inc. and Sunrun Inc., down by more than that. The WilderHill Clean Energy Index, which skyrocketed almost sixfold in roughly 11 months through Feb. 9, has since fallen more than 30 percent. Both are set to have their first quarterly loss in a year.

After seeking to capitalize on high-flying growth stocks like solar, equity investors are on the lookout for so-called value investments that look cheap and have the potential to rally when economies return to normal. So, it’s understandable that solar is seeing some profit-taking as portfolios rotate, said Raymond James analyst Pavel Molchanov.

Sunnova CEO John Berger said the company’s fundamentals haven’t changed but the market’s attitude has.

“Undeniably, solar stocks, as well as other growth stocks, have been under pressure as of late, driven by investors’ concerns on rising interest rates, shorter term focused investors’ profit taking, a market wide shift in focus from growth to value stocks and indiscriminate selling,” he said in an email.

In addition to relative valuations for clean energy running a little hot compared to the broader market, energy-transition special purpose acquisition corporations, or SPACs, have also

seen headwinds, said Sean Milligan, an analyst at Williams Trading LLC. When they aren’t outperforming, interest lessens from incremental investors, he added.

SPACs have been a key instrument for private companies to go public, including the rush of electric-vehicle and clean-energy listings, but rising bond yields and a flood of issuances have sapped sentiment.

Meanwhile, the three biggest utilities in California — America’s biggest solar state — last month proposed new connection charges and lower compensation for rooftop customers who install panels on their homes. Multiple companies have issued equity, which tends to pressure stocks. And interest rates have ticked up.

Still, the fundamentals for residential solar remain strong:

U.S. installations are poised to break last year’s record, President Joe Biden is keen to make the country’s electric system green, and grid outages are convincing more Americans to get rooftop systems and home batteries. And Washington is poised to start work on Biden’s infrastructure bill, which includes provisions good for solar, said Joe Osha, an analyst at JMP Securities.

GREG JEFFERSON

Karsten Moran / New York Times Though the solar business remains brisk, investors are seeking stocks with the potential to rally when economies return to normal.