Wait out the winter
But let me remind you: I'm not picking a portfolio today. The solar winter is likely to run on for a while, and the solar industry could look much different by the time it's over. I'd advise staying flexible enough to change the membership of that portfolio as the trend plays out.
To judge the progress of that trend -- and to decide when I want to buy this portfolio -- I'd watch something called price parity. Price parity is the point at which solar-generated electricity costs the same as electricity generated from other sources, such as coal or nuclear power plants. Price parity is what will determine when we see an explosion in demand for solar cells and panels -- and when you want to put some money into this sector.
Unfortunately, price parity isn't simple to figure. It depends on the where (because it depends on how often the sun shines and on the cost of other local sources of energy); the what (because it depends on what subsidies governments provide for solar, coal, natural gas and other forms of electricity production and whether they are counted in the calculations) and the who (because who calculates parity can affect the results of the calculations).
Fortunately, you don't need to descend into that morass. Instead, you can use the predictions of when parity will arrive by one group or another to see how we're progressing against expectations. Pick a group that does solid work, that's relatively mainstream in its opinions (although it's OK if it's a mild advocate or opponent of solar power) and that's likely to be around for the next decade.
So you might pick the projections of the European Photovoltaic Industry Association. The group isn't exactly neutral, but its work is founded on reasonable assumptions and is widely reported. The organization is projecting that solar-generated electricity will reach price parity -- they're actually talking about grid parity, which is parity in the price of electricity paid by retail consumers -- in Italy, Spain, Germany and France by 2015.
Watch to see if that projection changes in the group's annual reports, and time your solar portfolio accordingly.
And what do you do if you already own a solar stock or two? Of course, you can hold them for the turn in 2013 or so. That's a long time to sit on dead money. Or you can look for a rally that will let you sell now to buy another day.
That's an especially appropriate idea for Chinese solar stocks that have been pounded with the rest of the Chinese stock market but now look to be making up some ground. So, for example, you might want to hold on to shares of Yingli Green Energy to take advantage of more of that general market trend before selling. That's what I plan on doing in my Jubak's Picks portfolio, where I hold Yingli Green Energy. (I also hold First Solar and SunPower in my long-term Jubak Picks 50 portfolio.)
At the time of publication, Jim Jubak did not own or control shares of any company mentioned in this column in his personal portfolio. The mutual fund he manages, Jubak Global Equity Fund (JUBAX +0.11%), may or may not now own positions in any stock mentioned in this column. The fund did own shares of Yingli Green Energy stock as of the end of September. For a full list of the stocks in the fund as of the end of September see the fund's portfolio here.
Jim Jubak's column has run on MSN Money since 1997. He is the author of the book "The Jubak Picks," based on his market-beating Jubak's Picks portfolio; the writer of the Jubak's Picks blog; and the senior markets editor at MoneyShow.com. Get a free 60-day trial subscription to JAM, his premium investment letter, by using this code: MSN60 when you register here.
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