FRANKFURT Beaten-down solar stocks will bottom out in the first three months of 2012, a fund manager at U.S. asset manager Calvert Investments said, giving him an opportunity to increase his position in the sector ahead of a possible recovery.
"I think that the bottom for the solar market is probably going to be reached in the first quarter next year, which is traditionally weak," Jens Peers said.
"So if you believe in a recovery, it may actually be a good time to increase that holding again," he added, mentioning Chinese solar companies and players active in installation businesses as potential investment targets.
Peers manages the $99 million Calvert Global Alternative Energy Fund, which is down 24 percent year-to-date, compared with a 25-percent drop in the FTSE cleantech index of the world's biggest renewable stocks.
Beaten down by regulation and weak demand, most renewable stocks have significantly underperformed the broader market as they usually attract a large number of short sellers.
Peers said that most of the solar companies were trading at a fraction of their book value and that shares could recover if markets stabilize.
U.S.-based solar wafer maker MEMC Electronic, one of the fund's top holding, trades at just 64.3 percent of its book value, according to equity research firm StarMine, part of Thomson Reuters.
At 18.3 percent, solar stocks are the fund's second-biggest holding after wind energy stocks, having fallen from 34 percent over the last 18 months.
That money, Peers said, was shifted to emerging sectors such as energy efficiency and grid companies, with Italy's Prysmian now the fund's biggest holding. The company is the world's largest cable maker and also produces cables used to transport wind power from offshore plants to the mainland.
Itron Inc, another top holding, makes power meters that allow households to monitor their usage more closely and to save energy. Other holdings include Hanse Transmissions, a specialist maker of gearboxes for wind turbines, and Austrian power group Verbund.
Peers also holds First Solar, the world's largest solar company by market value, which last week announced Chief Executive Robert Gillette would leave. The stock has lost 14 percent of its value since then.
"The company was looking for a different culture, with a focus on sustaining its position in the current environment and not one on growth by expanding capacity. So we think it's good news in the long term," he said.
(Editing by Erica Billingham)