Alternative energy stocks get a bad rap because many investors think they are small-time startups that have no profits and can crash and burn in a hurry. And while it’s true that there is plenty of volatility in the space, there are stable players among alternative energy stocks.
Case in point: U.S. solar giants First Solar, Inc. (NASDAQ:FSLR) and SunPower Corporation (NASDAQ:SPWR) will form a joint “yieldco” enterprise that could have great influence on a utility-scale solar business and generate reliable cash flow and dividends for alternative energy stock holders.
Neither FSLR stock nor SPWR stock execs have given any details on the plan yet, however, so it’s unclear when investors will actually be able to get in on that venture.
So if you can’t wait and want to invest in a lower-risk alternative energy stock now, why not give Green Plains Inc (NASDAQ:GPRE) a look?
Green Plains – Your Best Alternative Energy Stock
Founded in 2004, Green Plains Inc is North America’s fourth-largest producer of ethanol. Although it’s not exactly a household name outside of corn country, GPRE stock is legit, with a $1.1 billion market cap, comfortably profitable operations and projected sales of $3 billion this year. This green energy stock also is sitting on a nice war chest of $425 million in cash, or 38% of its total market value, just for added security.
Heck, Green Plains stock is so reliable it actually pays a 1% dividend yield. Not many alternative energy stocks can say that!
If that’s not enough to convince you, consider the attractive valuation metrics, too. GRPE stock trades for a price-to-sales ratio of just 0.35 based on FY2015 forecasts, and a forward price-to-earnings ratio of roughly 18.5 based on projected EPS of $1.62. While the P/E ratio is a bit elevated, it’s not that out of whack with the 17.5 earnings multiple for the S&P 500 right now. Furthermore, when you price Green Plains stock based on FY2016 earnings instead (which are forecast to be $2.60), the forward P/E drops to just 11.5.
Revenue is growing, earnings are growing, valuation is fair, it pays a dividend … what’s not to like in this alternative energy stock?
There is, of course, the risk that continued softness in crude oil (and subsequently gasoline prices) will make ethanol unattractive and weigh on sales. However, the big regulatory mandates in America for ethanol use — the very ones that all these presidential hopefuls will soon be using to pander to Iowans — makes a big drop-off unlikely and strong baseline demand a good cushion.
If you want to buy alternative energy stocks but are looking for a bit more stability in place of the high-risk/high-reward trade off of other green energy investments, give GPRE stock a look.
Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” As of this writing, he did not hold a position in any of the aforementioned securities. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
