CNBC - Jessica Rao

The outlook for the solar industry might not be glowing, but its a lot brighter than it was a year ago when financing and demand dried up, abruptly ending what some might consider a golden age.

So, if you want a little exposure to the sun, here’s a snapshot of the sector and what’s hot.

Getty Images A worker cleans solar panels at a solar photovoltaic power station under construction in Xining of Qinghai Province, China.

Supply-Demand Dynamic

The good news, says Collins Stewart analyst Dan Reis, is that the demand for solar modules, a unit of interconnected solar cells, right now is very high.

“Most of the industry is sold out,” he says. That's particularly true of Germany, which represents about 36 percent of worldwide demand. Demand is also up in France, Italy and the U.S., while the new Japanese government is expected to increase subsidies.

On the supply side, the shortage of polysilicon, the building block for solar panels, is a thing of the past.

“Large polysilicon makers have been expanding capacity and it all came on line in the middle of last year,” says Kaufman Bros. green tech analyst Theo O'Neill.

So much so that massive oversupply is expected over the next three years. At the same time, however, the dramatic drop in the cost of producing solar panels will make it more competitive with other forms of energy.

Ultimately, this will be good for industry growth because more people will be able to afford solar, but will likely hurt some module companies in the near term.

Sectors And Players

As panel prices fall, consumers will eventually start to buy and it will be good for the companies that install solar panels. "There is no reduction in how much it costs to install solar on your roof, says O’Neill.

Gordon Johnson, who heads alternative energy research at Hapoalim Securities, says the price collapse in modules will help another part of the solar food chain.

“You want to buy the guys who benefit from lower pricing like the guys selling equipment to the Asian module manufacturers who are aggressively expanding capacity. Those guys are set for massive gains,” he says.

Another indication that solar is an industry that will grow, is the big name players who are getting involved. General Electric has a noteworthy start-up in Colorado called PrimeStar Solar.

“They have ordered production equipment so I am expecting that they are going to become a force in the industry at some point,” says O’Neill.

At the same time, analysts expect consolidation as some of the smaller inefficient players are absorbed or exit their business.

Investing Options

The solar industry may be young, but it's diverse, dynamic and competitve enough to make stock picking a perilous exercide. For that reason, some experts suggest ETFs as an entry point for retail investors because of their broad diversification.

“I would surely use an ETF because sometimes it doesn’t matter how good the numbers look or how you think the company is managed," says the editor of ETF Trends, Tom Lydon. "It doesn’t always translate into company A outperforming company B.”

Lydon suggests using a trend-following strategy.

“By having a buy and sell discipline, I use the 200-day moving average, it can help keep you during potential long-term up trends and have you out before you lose too much,” he explains ...

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