SCTY Stock: Is It Time to Bail on SolarCity Corporation?

SCTY Stock Outlook for 2016SCTY Stock Headed Higher?

Despite weak oil prices, SolarCity Corp (NASDAQ:SCTY) has rarely looked this attractive. SCTY stock is a diamond in the ruff right now, after being dumped with all of the other solar stocks.

These opportunities appear from time to time, but they’re gone before most people realize they’re there. A hot stock is speeding along and then it gets blindsided. It could be a macro event, a change in regulation, or something else entirely.

SolarCity is one of those stocks. One day, it was a fast-growing company with a bright future and the next, it became a worn-out dud. The market pulled a 180-degree turn on the company.

It’s really hard to shake off that kind of pessimism. Investors start dumping SCTY stock at the slightest sign because they’re terrified it won’t recover.

Yet their loss can be our gain. Here’s what I would do to make a ton of money off SolarCity stock.

What’s Holding Back SolarCity Stock?

The key is to separate a valid pullback from one that is pure panic. There are a handful of ways to tell the difference. Here’s my favorite way to see if an event is important or not.

Ask yourself how the event affects the business, not the stock price. While the market eventually lands on a fair price, emotion is what drives the short-term. To make the big bucks, you have to beat the rest of the market to the truth.

So look at the second half of 2015, when SolarCity got blindsided. A tax credit that was key to SolarCity’s survival came up for renewal and its odds looked bad. The 2016 election cycle was already under way.

The political climate was divisive, making compromise unlikely. If the tax credit expired, then it was reasonable to assume SolarCity wouldn’t survive. At the very least, the company would be significantly wounded. SCTY stock lost more than half its value on those fears, but at least the pullback was legitimate.

Yet Congress managed to find common ground. They passed the tax credit as part of a larger bill in December. The fear should have been over. (Source: “Wind, Solar Companies Get Boost From Tax-Credit Extension,” The Wall Street Journal, December 16, 2015.)

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SolarCity did get a boost right after Congress passed the extension. Its stock topped $55.00 around the middle of December, but it shed most of those gains within a month. What sparked the sell-off? Another regulatory change, it seems.

Big surprise.

A state commission in Nevada made rooftop solar power more expensive for its residents. SolarCity saw the move as a deliberate attack on rooftop solar, so they left the entire state. Was this a legitimate reason to dump the stock? (Source: “Buffett’s Win in Nevada Prompts SolarCity to Make First Job Cuts,” Bloomberg, January 6, 2016.)

SCTY Stock Outlook for 2016

All in all, I would say no. Losing business in Nevada isn’t a lethal blow to SolarCity. It would be worrying if more states do the same thing, but there’s no evidence of that happening anytime soon. California just ruled in favor of SolarCity and Arizona has too many jobs on the line to vote against it. (Source: “California decision boosts SolarCity, SunRun stocks,” MarketWatch, January 28, 2016.)

So the fallout was just limited to Nevada. To put that in perspective, SolarCity lost 44% of its market value because of the Nevada ruling. Is one state really so important to the company? My guess is not, which means there was still pessimism hanging over the stock.

If you want to beat the market to the truth, now is the time to turn bullish on SolarCity stock. This opportunity won’t last long.