Senator Joe Manchin just said he won’t support the climate bill — is it time to dump solar stocks for good and double down on coal producers?

Market Trading EssentialsJuly 20, 2022

3 minutes read

Senator Joe Manchin just said he won’t support the climate bill — is it time to dump solar stocks for good and double down on coal producers?

Renewable energy stocks were some of the biggest winners in 2020. But the upward momentum wasn’t able to continue in 2021. In 2022, things are even more challenging.

Last Friday, reports suggested that Sen. Joe Manchin will not be supporting his party’s economic package that includes new spending on climate measures.

Why does that matter? Well, in a 50-50 Senate with a united Republican opposition, Democrats need the West Virginia senator’s vote to move the package forward.

“Political headlines are of no value to the millions of Americans struggling to afford groceries and gas as inflation soars to 9.1%,” Manchin’s spokesperson tells NBC News.

“Senator Manchin believes it’s time for leaders to put political agendas aside, reevaluate and adjust to the economic realities the country faces to avoid taking steps that add fuel to the inflation fire.”

The news has sent some waves across the renewable energy sector.

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Solar stocks bloodbath

Solar stocks took a big hit.

On Friday, First Solar plunged 8.1%, Sunrun dropped 6.4%, Sunnova Energy International fell 5.0%, while SunPower was down 3.4%.

The Invesco Solar ETF (TAN) tumbled as much as 7% at one point on Friday before ending the session with a 2% loss.

And it’s not like solar companies were hot commodities to begin with. While the sector has rebounded after Friday’s sell-off, the four companies mentioned above are all down more than 20% year to date.

But not everyone is giving up on this investing theme.

“Manchin’s decision impairs the ability for the U.S. to achieve President Biden’s goal to reduce U.S. greenhouse gas emissions 50% to 52% below 2005 levels by 2030,” investment bank Cowen writes in a note to clients.

“Despite the disappointing news, the economic rationale for the shift toward renewable power is increasingly compelling and keeps us constructive on the group.”

If you are looking for contrarian ideas, these beaten-down solar stocks – alongside other renewable energy names – could be worth a look.

For those who don’t want to pick individual winners and losers, ETFs like TAN, the First Trust Global Wind Energy ETF (FAN), and the iShares Global Clean Energy ETF (ICLN) would provide a good starting point for further research.

Time to revisit coal?

Climate advocates point out that Manchin has longtime ties to the coal industry.

Manchin helped found coal brokerage firm Enersystems, Inc. in 1988. And according to CNN, he had a between $1 million and $5 million stake in the company in 2021.

CNN further notes that financial disclosures show Manchin making over $536,000 from his share in Enersystems last year. To put that in perspective, his Senate salary was $174,000.

Public Citizen lobbyist Craig Holman told CNN that Manchin is a “walking conflict of interest.”

“And what makes it all the more troubling is that he’s the 50th Democratic senator, which gives him enormous sway over climate change policy.”

To be sure, coal is no longer making headlines in the investing world. In fact, the only coal-focused ETF — the VanEck Vectors Coal ETF (KOL) — stopped trading in December 2020.

But the industry is far from dead.

Alliance Resource Partners (ARLP), a diversified producer and marketer of steam coal to major U.S. utilities and industrial users, recently raised its cash distribution to investors by 40%. The stock is also up 58% year to date, in stark contrast to the broad market’s double-digit decline.

Another example is Peabody Energy (BTU), a coal producer headquartered in St. Louis. The company’s products are essential for electricity generation and steelmaking. Its shares are up 91% in 2022.