Solar Stocks Cool Off

 | May 16, 2014 | 1:30 PM EDT
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Canadian Solar (CSIQ) is getting hit hard today. The company disclosed in their earnings this morning that their second quarter revenue would be slightly lower than what analysts had as their consensus target.

This is the second quarter in a row now that Canadian Solar has disappointed. In the first quarter, management blamed a bitter winter in Ontario for creating major delays for a number of solar projects in the Canadian province.

Yet, after both these earnings disappointments, management has kept up their full-year guidance. They claim that all delayed revenue will get caught up as the year rolls on. The year is shaping up to be very back-end loaded for the company.

These two delays are wreaking havoc with Canadian Solar's stock price. After rising eightfold last year, the stock has basically now been cut in half -- from $44 to $22 after this morning's results.

Canadian Solar is not the only solar company that has seen its shares pull back recently. Solar City (SCTY) is down 46% from its all-time highs. Trina Solar (TSL) is 45% below its spring highs. Yingle (YGE) is 69% below the 52-week highs.

To be sure, a big reason for the strong retreat of all these solar names is that they are caught up in last year's momentum move up. The question is: Where do they go from here?

Solar demand is still exploding in China and in the U.S. While investors in solar stocks remember well the boom and bust of 2007 and into 2008, this is a different time. Unlike back then, there is truly global demand for solar today. Solar energy represents 1% of the energy created in the U.S. last year. However, this rate is doubling every two years. It won't take long for solar energy to be very large.

China installed 12 GW of solar power last year. That's more than its prior three years combined. What's more, no country has ever installed so much solar power in a given year.

This means that, although these stocks are all getting a haircut at the moment, strong fundamentals are underlying this sector. As soon as the correction runs its course, you should watch for Canadian Solar and many of the other solar names to go back to and then pass their 52-week highs.

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