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3 Solar Stocks in Focus After US-China Temporary Trade Truce

Aparajita Dutta

U.S. market indices touched a record high at the start of July, after President Donald Trump and Xi Jingping agreed to resume trade talks. The two heads of state reached a temporary trade truce over the past weekend, as part of which they confirmed the resumption of negotiations.

As expected, solar stocks surged following this news, probably on hopes that negotiations may lead to some respite from the severe tariff on import of cheap solar panels and modules from China. U.S. solar stocks gained 0.7% on Jul 1 compared with the S&P 500’s increase of 0.6%.  

Solar Tariff & its Impact

Last January, the U.S. administration levied 30% tariff on solar panel components, hoping that such trade restriction will create jobs for Americans. It was one of the first unilateral trade restrictions imposed by Trump as part of a broader protectionist agenda to help U.S. manufacturers against foreign producers who flood the market with cheaper solar modules.

However, the solar industry’s growth did not continue as investors became skeptical over the long-term success of the tariff.  After January 2018, solar stocks cumulatively plunged 23.5% till the end of last year.

This was because the U.S. solar market depended largely on imported panels. Per a report by GTM research, 87% of U.S. solar installations used foreign-produced panels in 2016, primarily from China. So, levying a tax on these imports hurt solar stocks ultimately.

What’s the Current Scenario?

Recovering from last year’s disappointing performance, U.S. solar industry has been in the headlines in 2019 so far.  Thanks to the 10% year-over-year increase in solar installations during the first quarter of 2019, U.S. solar stocks rallied 28.7% in the said time frame.  

Contrary to earlier expectations of lower solar installations in the United States due to the tariff imposition, the numbers have improved on plummeting price of solar modules. Impressive installation trend in the solar market coupled with unexpected rapid growth in Florida and Texas boosted expectations. Wood Mackenzie Power & Renewables now projects more than 13 GW of solar capacity additions in 2019, indicating 25% growth year over year.

If the U.S.-China trade negotiations bear fruits and there is dilution in import tariff on solar panels from China, the U.S. solar industry would benefit even more. Even if this does not take place, the aforementioned projections are sufficient enough to entice investors to take a look at the stocks mentioned below.

Stocks in Focus  

We have zeroed in on three U.S. solar stocks that carry a favorable Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) and boast strong fundamentals.  You can see the complete list of today’s Zacks #1 Rank stocks here.

These stocks rose in the session following Trump and Jingping’s agreement on trade negotiations.

JinkoSolar Holding Company Limited JKS sports a Zacks Rank #1. The company boasts a solid long-term earnings growth rate of 20%. Its shares rose 0.7% on Jul 1, reflecting the optimism surrounding the U.S.-China trade talks.  

Canadian Solar Inc. CSIQ holds a Zacks Rank #2. The company boasts a solid long-term earnings growth rate of 32%. Its shares rose 1.3% on the day.  

Enphase Energy, Inc. ENPH carries a Zacks Rank #3. The company surpassed the Zacks Consensus Estimate for earnings in trailing four quarters by average of 31.8%. Its shares rose 2.2% on Jul 1.

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