Wall Street breathed a sigh of relief as Dow Jones inched up 0.4% and S&P 500 rose 0.5% on Sep 30, which marked a reversal from the decline in last week, on reports that the White House was mulling on limiting U.S. investments in China. Specifically, on Sep 27, this news surfaced in major media houses.
Naturally, this spooked investors and resulted in China-based giants like Alibaba BABA and JD.Com JD losing big, which, in turn, weighed on overall market indices. However, over the weekend, assurance from the Trump administration that such reports are inaccurate pushed back U.S. stocks on growth trajectory.
The news also came as a respite for the U.S. solar industry, which has been suffering due to the prolonged trade standoff between the two largest nations of the world.
Prolonged Solar Woes
President Trump and his Chinese counterpart Xi Jinping have been at loggerheads for more than a year now, on terms of trade, slapping elevated tariffs on each other’s products. However, when it comes to the solar market, the conflict between the two nations dates back to the late 2000s. As solar PV manufacturing brands from China came into prominence, the market share of U.S.-made solar panels started to decrease significantly (per a GTM research report).
In 2012, the U.S. Department of Commerce imposed the first round of anti-dumping and countervailing duties (AD/CVD) on imported solar panels from China. In 2014, further tariffs were imposed on Chinese manufacturers. But the biggest blow to the solar industry came in the form of the 30% tariff imposed by Trump on solar panel imports from China in January 2018. This is because the industry depended heavily on imported panels. Per a report by GTM research, 87% of U.S. solar installations used foreign-produced panels in 2016, primarily from China.
In September 2018, the Trump administration imposed 10% tariffs on $325 billion of imports, which included solar module components such as inverters and junction boxes. In May 2019, this tariff level was increased from 10% to 25%.
While such tariffs were intended to protect the domestic solar market, these ended up increasing the price of solar modules in the United States. Per the GTM report, currently, the price of solar modules in the United States is almost 50% higher than in China.
What Does the Current U.S. Stance Mean for Solar?
As is evident from the above discussion, the trade war will do no good to the U.S. solar industry. Therefore, the latest declaration from the U.S. administration that it is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges bodes well for solar stocks. Further, per CNBC, negotiators from China and the United States are expected to meet on Oct 10 to try and move forward on the trade front.
Wood Mackenzie Power & Renewables now projects more than 13 GW of solar capacity additions in the United States in 2019, indicating 25% growth year over year.
If the U.S.-China trade negotiations are successful and import tariff on solar panels from China lowered, the U.S. solar industry would benefit even more.
Stocks to Buy
Considering the aforementioned projection, investors may consider adding the following three solar stocks to their portfolio, which carry a favorable Zacks Rank and boast strong fundamentals. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Canadian Solar CSIQ sports a Zacks Rank #1. The company boasts a solid long-term earnings growth rate of 32%.
SolarEdge Technologies SEDG also sports a Zacks Rank #1. The company boasts a solid long-term earnings growth rate of 22%.
JinkoSolar Holding Company Limited JKS carries a Zacks Rank #2 (Buy). The company boasts a solid long-term earnings growth rate of 20%.
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Alibaba Group Holding Limited (BABA) : Free Stock Analysis Report
JD.com, Inc. (JD) : Free Stock Analysis Report
Canadian Solar Inc. (CSIQ) : Free Stock Analysis Report
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SolarEdge Technologies, Inc. (SEDG) : Free Stock Analysis Report
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