Column: Meme stock squeezes and new tariffs shake up US solar sector: Maguire
15/05/2024 24:35
(The opinions expressed here are those of the author, a
columnist for Reuters.)
By Gavin Maguire
LITTLETON, Colorado, May 14 (Reuters) - A slew of U.S.
solar stocks jumped to life this week amid a resurgence in
retail investor buying so-called meme stocks and news that the
Biden administration is imposing new tariffs on Chinese solar
equipment that may support U.S. manufacturers.
Share prices in U.S.-listed solar firms including Sunpower
Corp, Maxeon Solar and Sunnova Energy all jumped more than 20%
this week as they benefited from a wave of investor buying of
stocks that have been battered for the past year or so.
The Biden administration's new tariffs on several China-made
products including solar components and electric vehicles also
enlivened trading activity in related stocks.
OVERSHADOWED
Solar equities may lack the profile of meme stock behemoth
GameStop GME.N , which rallied to its highest since 2021 this
week as posts from "Roaring Kitty" Keith Gill raised chatter
about the return of the central figure behind the 2021 meme
stock frenzy.
Nonetheless, stocks tied to firms mainly engaged in the U.S.
residential solar sector have taken a drubbing and seen a surge
in short-seller interest since 2022 as rising interest rates
slowed demand for residential solar systems.
SunPower, Maxeon and Sunnova share prices all plunged
roughly 90% between mid-August 2022 and May 1,2024, and until
this week looked set to face continued headwinds in 2024 on a
"higher for longer" interest rate outlook.
However, the downbeat tone pervading the solar space has
been upended this week by the one-two punch of the meme stock
revival alongside the heightened focus on the solar space from
Biden's fresh tariffs and accompanying rhetoric about supporting
U.S. businesses.
OVERSOLD?
Stocks in SunPower have been among the most active in the
solar space this week, posting a record one-day gain of roughly
60% on May 14 as a buying frenzy took hold.
The manufacturer and installer of large scale solar systems
has racked up significant losses since California enacted new
net-metering charges a year ago that greatly reduced the appeal
of household solar systems in the state.
The company's dismal stock price performance over the past
year or so reflected the dour operating conditions, and the firm
announced a major restructuring last month.
However, the stock has also been a favourite among
short-sellers during much of its descent, with short interest
representing over 90% of the total amount of shares available to
the public as of April 30, according to LSEG.
Such lopsided investor positioning left the stock vulnerable
to a short covering rally on any sudden shift in market
sentiment, such as seen this week.
UNCLEAR OUTLOOK
Many of the challenges that have beset U.S. solar companies
over the past year remain in place, including high interest
rates that have snuffed out the appeal of financing the
installation of rooftop solar systems.
And the new tariffs imposed on Chinese components this week
may actually worsen market conditions for some firms which rely
on imported parts.
Nonetheless, after a roughly 90% collapse in the price of
some solar company shares since 2022, there was arguably only
limited room for additional stock price weakness going forward,
and plenty of scope for a rebound.
Now that a major rebound has taken place, many opportunistic
investors will no doubt have placed fresh short-sided bets on
solar stocks, on the assumption that prices will revert to their
downtrend once the short covering melee runs its course.
But given how aggressive the upside price moves have been
this week, most short-sellers will remain cautious about placing
very large bearish bets, and will be ready to unwind positions
if the market runs against them.
That change in sentiment may take some of the pressure off
the solar sector in general over the near term, and may allow
stock prices to creep higher still on any upbeat news items or
earnings reports.
And if U.S. interest rates are viewed as likely to come down
later in 2024 - making the financing of solar systems more
palatable - some investors with a long-term outlook may start to
view the beaten-down solar space as a bit of a bargain.
Such a sentiment swing would have been viewed as outlandish
just a few weeks ago.
But now that scores of short-sellers have been battered and
pushed out by this week's bull run, a change in the mindset of
solar stock holders is on the cards, and a brighter outlook
can't be rule out.
The opinions expressed here are those of the author, a columnist
for Reuters.
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Meme stock melt up? https://tmsnrt.rs/3WCet9p
US solar firms SunPower & Maxeon have followed GameStop shares
higher https://tmsnrt.rs/3QK3s1Y
SunPower share prices vs 1-day percentage change https://tmsnrt.rs/44PtzdF
SunPower short interest vs share price since 2019 https://tmsnrt.rs/4bDJwpk
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(Reporting by Gavin Maguire; Editing by Lincoln Feast.)
((gavin.maguire@thomsonreuters.com; +720 295 6101;))