How to Invest in Solar Stocks

By Contributing Writer

  • Overview

    Solar stocks are a big trend these days, as more companies develop technologies that use the heat and light of the sun to generate power. Renewable solar power is becoming more important as the prices of oil and natural gas continue to rise. Also, many people are concerned about the health risk and environmental risks of nuclear power and coal-burning power plants. As people look for alternative energy sources, solar companies are emerging and gaining in popularity. While investing in solar stocks is a good idea, investing in solid companies is an even better one.
    • Step 1

      Educate yourself about solar technology. Investing in solar stocks involves understanding how solar power is used. As an emerging technology, there will be solar companies devoted to sound business principles, while others are just following the current trend. To choose the best solar stocks, understand what a company does and how its products or services will impact the solar power industry. Learn as much as you can about the various types of solar technologies available and what the energy experts are saying. Read industry publications like "Green Chip Stocks."
    • Step 2

      Decide on a trading strategy. Before you start buying solar stocks, you need to have a trading plan in place. If you are a conservative investor, you may want to buy a good stock and hold it long term, for a year or more. Many solar stocks are of new companies so there is more inherent risk in them, especially in the short term.

    • Step 3

      Choose stocks with good value. Solar companies with steady earnings and low debt are good signs of a well-run company. With all solar companies, research and development is an integral part of the company's future. Innovative technology will make a solar company distinctive. A solar company needs to have enough capital to fund its R&D department, so look for companies with an influx of capital from venture capitalists. This information will be in its financial statements. This is a good sign that the company will have the financial backing it needs to grow into a large and profitable company.
    • Step 4

      Practice trading stocks. The old-fashioned way was to paper trade. With this method, you chose stocks and monitored their progress on paper. But now you can trade online by playing stock-investing games. In most cases, you are given at least $10,000 in virtual money to trade stocks with. The game keeps track of the stocks in your virtual portfolio, as well as your profits and losses. There are no online trading games especially for the solar energy market, but solar stocks, especially those of large companies, will be listed in these games.
    • Step 5

      Find a broker that suits your needs. There are full-service brokers like Morgan Stanley and online brokers like E*Trade. Both execute your trades, but the minimum initial deposits and the commission rates vary sharply. All stockbrokers deal with stocks of any industry, so you should have no problems buying and selling solar stocks with the broker you choose.
    • Step 6

      Start by buying one stock. If you are new to investing, it is probably best to start small and buy shares in one solar company. Buying stocks in a company that manufactures solar panels is a good start because this industry has been around a long time and has proven itself to be an effective product that is growing in popularity. As you gain more confidence in your investing skills, add more stocks. But remember to diversify your portfolio. It is not a good idea to only invest in solar stocks. If the solar industry has a downturn, your entire portfolio could decrease in value. Solar stocks of good companies can make you money, but they should be just a small percentage of your investments.
    • Skill: Easy

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