SolarCity Stock Could Skyrocket
SolarCity Corp (NASDAQ:SCTY) is in the right business at the right time. A recent study from renowned scientist and hedge fund manager Doyne Farmer shows why solar bets like SCTY stock could pay off big time in the near future.
SolarCity is a residential solar company, which effectively makes it a bet on the widespread use of solar power. By contrast, other firms like First Solar, Inc. build huge power plants and sign long-term contracts with utility companies.
These firms don’t give customers control over their power generation in the same way that distributed solar does. As we see consumer preferences shift towards solar, I do think that firms like SolarCity could end up winning the day.
That being said, all solar companies are going to benefit from the coming revolution. The recent study by Farmer showed that solar panels are getting 10% cheaper every year. He thinks solar power could make up 20% of global energy by 2027. (Source: “How predictable is technological progress?” Science Direct, April 2016.)
Farmer’s prediction means that solar power is growing more rapidly than we anticipated. Previous studies claimed that solar could only reach 16% by 2050. The new estimates put those numbers to shame by suggesting that customers are switching to solar at unprecedented levels.
However, solar stocks haven’t reflected this enormous surge in popularity. There are two possible reasons why, beginning with the whirlwind of pessimism that surrounded solar energy last year.
Investors were running scared from the solar industry. Weakened demand from China and low prices for natural gas were damaging the estimated uptake for solar. This new study obviously shatters that myth.
But American solar companies were also facing an immediate threat. A key tax credit for residential rooftop solar was due for renewal, but Congressional gridlock made it seemingly impossible for lawmakers to pass an extension.
Tax credits are crucial for new technologies to survive at the early stages, and it wasn’t like they were picking winners or losers. It applied to consumers, not to any one company, but SolarCity stock fell by more than 50% at that time.
In the end, Congress miraculously pulled through by tucking the extension into a larger bill. Members of Congress had actually done their jobs (for once). But by that time, pessimism had taken root in the market and it could have a delayed effect.
That’s one possible explanation for why solar stocks haven’t surged on this new report.
Another is that not enough people know about it. Sure, this report received support from the European Commission and the U.S. Department of Solar Energy Technologies Office after it was published. But only a small group of insiders were aware of that. (Source: “Cost of Solar Panels May Prevent Global Warming,” The Examiner, April 13, 2016.)
I only heard about it because Doyne Farmer happens to be one of my favorite researchers. His work on complex systems was so great that he even started a hedge fund, you know, just to see if his ideas about financial markets were right.
He called the hedge fund Prediction Company. During the 2008 financial crisis, when the entire stock market was collapsing, Prediction Company still managed to produce 80% returns. Farmer is a wizard with money, and according to his estimates, solar power could be entering a bigger boom period than we imagined.
To put it simply, SCTY stock and its peers could be on the way to massive gains.