Many solar stocks were hammered in the past year or so but that doesn't mean solar is doomed; there are some interesting things taking on in the space once again, notes David Zeller of Money Morning in Streetwise's The Energy Report.
The majority of investors, when considering stocks to buy, have given up on solar companies.
That's mostly due to a two-year beat-down of the sector and plenty of bad publicity from the demise of federally subsidized Solyndra.
But while the sector continues to suffer-more solar companies will likely go under in 2013-a choice few are positioned to benefit from a rebound that will start this year.
One sure sign of better days ahead is that the sector has recently attracted interest from one of the world's most respected investors, Warren Buffett.
Just within the past month MidAmerican Energy Holdings Co., a subsidiary of Buffett's Berkshire Hathaway Inc. (BRK.A, BRK.B), announced a deal to pay SunPower Corp. (SPWR) between $2 billion to $2.5 billion for two California solar projects.
That followed MidAmerican's purchase of a 49% stake in an Arizona solar plant jointly owned by NRG Energy Inc. (NRG) and First Solar Inc. (FSLR), as well as the $2B purchase of a planned solar farm in San Luis Obispo, California, also from First Solar.
Here's why Buffett has taken an interest.
Why Solar Stocks Will Bounce Back
Solar power has continued to grow in popularity even while solar companies have struggled.
According to the Solar Energy Industries Association (SEIA), US solar installations grew from about 1.9 gigawatts (1.9 GW) in 2011 to 3.2 GW in 2012. SEIA projects growth to nearly 4 GW in 2013 and nearly 8 GW by 2016.
Such growth hasn't helped solar stocks because oversupply of photovoltaic (PV) technology, which converts sunlight into energy, has kept prices falling, eroding profits.
That situation figures to improve in 2013.
"Prices will stabilize by the middle of next year," Glenn Gu, a senior PV analyst on price analysis for IHS Solar solutions, wrote in the IHS Solar Whitepaper for 2013.
He attributed the improvement "to a moderate cut in production" among top PV suppliers and "because some excess capacity in China—from ingot to cells—is also expected to leave the industry by mid-2013."
Chinese overproduction figures to fall this year because Beijing is growing weary of pouring money into its struggling solar industry. A few weeks ago, the State Council, China's cabinet, said it would encourage mergers and acquisitions among its solar companies by using "market pressure mechanisms."
In addition to the prospect of less Chinese competition, US companies stand to benefit from rising demand here in the United States, particularly utility-scale projects.
The US Department of the Interior in October finalized a program designed to encourage development of utility-scale solar projects on public lands in six Western states, several of which already have strong solar incentives.
Meanwhile, the drop in solar costs has made it more competitive with other forms of energy, adding to its inherent appeal versus fossil fuels as a "green" source of energy.
Taken together, it means now there are some solar stocks to buy—the better-run survivors that finally will begin to see some benefit from their endless efforts to cut costs and improve efficiencies.
Solar Stocks to Buy
Here are three solar stocks to buy that have an excellent chance to ride the coming rebound in solar:
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