With solar and wind power both likely to generate increasing shares of world energy output, renewable energy stocks would seem to be excellent choices for investors.
But, so far, that hasn’t necessarily been the case.
Among the most popular solar stocks, First Solar, Inc. (NASDAQ:FSLR) still trades about 90% below its all-time highs of nearly a decade ago and just bounced off a four-year low. Sunedison Inc (OTCMKTS:SUNEQ) went bankrupt. The Guggenheim Solar ETF (NYSEARCA:TAN) is down 60%+ in less than two years. Even First Trust Global Wind Energy (ETF) (NYSEARCA:FAN) trades off mid-2014 highs.
There have been winners: Tesla Inc (NASDAQ:TSLA) certainly qualifies (though its acquisition of SolarCity was at a price half of where that stock traded the year before the deal was announced). But the problem with picking stocks in the renewable space is that supply and demand have been volatile, and ever-changing government regulations and subsidies haven’t helped.
As poor as some renewable stocks have performed, however, the long-term tailwinds behind the industries remain intact. Investors simply have to choose carefully, and find stocks most likely to be winners.
Here are three renewable energy stocks that meet those criteria.
Renewable Energy Stocks to Buy: Daqo New Energy Corp (DQ)
At first glance, Daqo New Energy Corp (NYSE:DQ) looks absurdly cheap. The Chinese polysilicon manufacturer trades at less than four times 2018 analyst consensus earnings-per-share — despite those analysts expecting growth in both 2017 and 2018. Polysilicon is a key input for solar cells, and long-term demand should rise as a result.
There are reasons for the low multiple. Polysilicon prices have been extremely volatile, including record low prices a little over a year ago. Daqo’s average realized price declined from $25/kg in 2012 to a bit over $15 in 2016, per its 20-F filing.
Government subsidies have impacted the market in China, and governance concerns aren’t immaterial for DQ stock.
Still, the stock looks just too cheap, even after a 20% post-earnings gain this past week. It’s likely pricing pressure will arrive at some point, but the stock is already pricing in that pressure, even though it hasn’t come yet.
Capacity expansion has led to record production, and Daqo generally is the lowest-cost provider in the space already. The long-term trend should be solid, even if pricing and demand see some near-term disruptions. And that means DQ stock might be just too far cheap.
Renewable Energy Stocks to Buy: Plug Power Inc (PLUG)
Fuel cell manufacturer Plug Power Inc (NASDAQ:PLUG) has been one of the disappointing investments in the renewable space. PLUG stock trades below its levels of a decade ago, and still well off highs near $8 reached some three years ago.
But the company has made some progress. Revenue has better tripled since 2013, even after a 16% decline in 2016. Gross profit turned positive in 2016, a step in the right direction.
The most intriguing catalyst comes from an April agreement with Amazon.com, Inc. (NASDAQ:AMZN). Amazon is powering forklifts at certain distribution centers with Plug Power technology.
The agreement is expected to add $70 million in 2017 revenue, which itself would drive 80% growth in overall sales. Amazon also has warrants to buy over 20% of PLUG shares, assuming it purchases some $600 million in goods and services for the company — a figure that is seven times 2016 revenue.
Meanwhile, Plug Power also has a major deal with Wal-Mart Stores Inc (NYSE:WMT), which generated 34% of 2016 revenue. While PLUG isn’t profitable, or close, a presence in two of the premier supply chains in the world seems like a good start.
Renewable Energy Stocks to Buy: Amtech Systems, Inc. (ASYS)
Amtech Systems, Inc. (NASDAQ:ASYS) has lived through the boom-and-bust solar cycle over the last few years. The company makes diffusion furnaces used to produce semiconductors targeted mostly toward the solar industry.
Demand boomed in 2010 and 2011, but the resulting oversupply has hammered Amtech’s business. ASYS has been unprofitable even on an EBITDA basis in each of its last five fiscal years. Revenue declined from $120 million in 2010 to $35 million just three years later.
But the cycle is starting to turn in Amtech’s favor. The company merged with BTU International in early 2015, diversifying its revenue base and expanding its presence in China. The fiscal Q2 report on May 10 showed record bookings in solar, boosted by two large orders over the last few months.
ASYS stock has doubled since the beginning of the year. But with revenue returning and the company heading back for profitability — finally — there could be more upside ahead.
As of this writing, Vince Martin has no positions in any securities mentioned.