A good thought-provoking piece here got me thinking - Spring brings sunnier view for solar stocks - how big does a correction have to be for investors to start buying up a particular sector again?

One approach has to recall the wisdom of the original value investor, Benjamin Graham - see wiki, which I have borrowed heavily from below, whose philosophy emphasised investment over speculation.

Graham argued that;

• a stock owner should not be too concerned with erratic fluctuations in stock prices, since in the short term, the market behaves like a voting machine, but in the long term it acts like a weighing machine (i.e. its true value will in the long run be reflected in its stock price).
• Passive or defensive investors, invest cautiously, look for value stocks, and buys for the long term.
• Active investors, on the other hand, is one who has more time, interest, and possibly more specialized knowledge to seek out exceptional buys in the market.

I don't give buy or sell advice on AEI, but it does seem to me there is much reason in Graham's approach. And I would guess that if he were to look at the solar sector today, he would continue to advocate a long-term investment horizon. The daily swings in alternative energy stocks are pretty exceptional and you can be either a brilliant speculator or more likely, just lose your shirt. None of the growth that has been happening in the solar industry is going away in the forseeable future, which I would call the next 5 years at least.

But valuations are all relative, first of all to other sectors and secondly to the rate of continued growth for each company . . .

A week ago, the FTSE 100 had a PE ratio of 11 and right now, the Dow Jones Industrial Average is 12.6. If you don't factor in the above averarge growth of the solar industry, then of course solar stocks look pricey. SunPower shares are at about 33 times 2008 earnings, First Solar at 85, Suntech at 22 and at the time of posting, Trina Solar at 20.9. Anyway take a look through our list of solar stocks and make up your own mind - PE Ratios are shown for all North American and UK listed stocks.