J.P. Morgan: Only Three Solar Stocks to Buy and Own Now

In a new report from J.P. Morgan, the analysts at the firm point out that photovoltaic (PV) solar companies continue to post strong year-over-year improvement in revenue and earnings, owing to ramping demand for solar power, both utility scale and distributed, particularly in China and Japan. Tier 1 suppliers are operating close to full capacity, benefiting gross margins and yielding good visibility for those companies with late-stage pipeline. They maintain that with all of these positives, investors should stay with the industry leaders.

Here are the three Overweight- or Buy-rated stocks to buy at J.P. Morgan now.

Canadian Solar Inc. (NASDAQ: CSIQ) makes the J.P. Morgan list handily. The company is one of the world’s largest and foremost solar power companies. As a leading vertically integrated provider of solar modules, specialized solar products and solar power plants with operations in North America, South America, Europe, Africa, the Middle East, Australia and Asia, Canadian Solar has delivered more than 6 gigawatts of premium quality solar modules to customers in more than 70 countries. The J.P. Morgan price objective for this top name is $50. The Thomson/First Call consensus target is set close by at $48.77. The stock closed Wednesday at $35.13. A move to the target would be a 43% gain.

First Solar Inc. (NASDAQ: FSLR) rallied huge Wednesday after it posted strong earnings. The company operates through two segments. The Components segment designs, manufactures and sells solar modules, such as CdTe modules that convert sunlight into electricity for project developers, system integrators and operators of PV solar power systems. The Systems segment provides turn-key PV solar power systems or solar solutions, such as project development; engineering, procurement and construction; operating and maintenance; and project finance services to investor owned utilities, independent power developers and producers, commercial and industrial companies, and PV solar power system owners. The J.P. Morgan price target for the stock is $64 and you can bet that number will go higher. The consensus price target is $47.20. The stock closed up more than 20% Wednesday at $69.40. Investors may want to look for a pullback to get involved.

SunPower Corp. (NASDAQ: SPWR) rounds out the big three solar stocks to buy according to J.P. Morgan. The company offers solar power products, including panels, balance of system components and inverters. It also designs, manufactures and sells high-performance rooftop and ground-mounted solar power systems, as well as utility-scale PV power plants. In addition, the company offers operations and maintenance services, including remote monitoring, preventative and corrective maintenance services, as well as rapid-response outage restoration and inverter repair services. The J.P. Morgan price target is $38.50, and the consensus is at $34. SunPower closed Wednesday at $32.76.

One easy way for investors looking to own the sector, but with more diversification, is to buy the Guggenheim Solar ETF (NYSEMKT: TAN). The top names to buy at J.P. Morgan are heavily weighted in the exchange traded fund, with First Solar making up a sizable 5.16% position in the portfolio.

For years Wall Street has said that the time for solar stocks has finally arrived. More than once, investors have bought the call and been absolutely destroyed owning the sector. With lower costs, and an increasing need for energy both from a commercial and residential standpoint, the long-awaited critical mass for the sector may have finally arrived. Investors looking to stick a toe into the water may want to stay with the top names recommended at J.P. Morgan, and leave the more speculative stocks to others.