Solar Stocks Still Have Many Dark Clouds

On Tuesday, shares of First Solar FSLR surged 10.3% on volume that was more than double the daily average after the company said it will lay-off 2,000 staffers and close a plant in Germany due to slack demand for solar panels. That might be interpreted to be good news for the downtrodden solar sector. After all, First Solar is the largest U.S.-based maker of solar panels, and hey, the stock soared on this news.

Well, if the solar sector has taught investors anything over the past 12 to 18 months it is be careful because what looks like good news rarely is anything more than a one-day phenomenon. For myriad reasons, First Solar and its rivals have been savagely repudiated for over a year. Just look at the performances of the Guggenheim Solar ETF TAN and the Market Vectors Solar Energy ETF KWT over the past year. Both funds are down almost 70%.

Talk about value destruction. Regarding First Solar, Tuesday’s 10.3% jump took the stock to $22.96. Once upon a time, the stock traded above $145. The company said it’s taking the aforementioned cost-cutting actions because of weak demand in key solar markets and increased competition from Chinese rivals with lower-priced products.

By no means should First Solar’s statements about its Chinese peers be taken as an invitation to buy Chinese solar stocks. Just look at the statistics. Yingli Green Energy YGE is down over 71% in the past year. JA Solar JASO has plunged more than 77%. Suntech Power STP has dropped 69%. Trina Solar TSL has shed 76% in the past 12 months. We could go, but you get the point. Chinese solar stocks have stunk up the joint as well.

There’s little reason to believe that this scenario will change anytime soon. First Solar said demand is waning and it isn’t the first solar to say as much recently. European nations, among the biggest consumers of solar power in the world, have trimmed solar subsidies, hammering publicly traded solar firms in the process.

More obvious reasons exist to avoid solar stocks. It used to be rising oil prices were good for solar stocks because high oil prices renewed the debate on embracing alternative energy sources. That’s a thing of the past. Oil futures are higher in 2012. Solar stocks are not.

Not to mention, President Obama has been adamant about the U.S. using more renewable and alternative energy sources. Simply put, the President loves the solar industry, but even that hasn’t been enough to save these stocks. Combine all these factors and you’ve got a sector worth shorting or avoiding, not one to be long with.