This year has been a profitable one for those with solar stocks in their portfolios. The Investco Solar ETF (NYSEARCA:TAN), which tracks the industry as a whole, has gained nearly 40% so far this year despite hitting a speed bump at the end of September.
While solar energy certainly has a lot of growth potential around the globe, it’s worth noting that the industry over all can be a volatile one. Rising competition and cost pressures have made it difficult to choose winning stocks to buy. However, if you can stomach a bit of risk, solar stocks are a great way to round out a long-term portfolio.
Here’s a look at five potential solar stocks to buy.
Solar Stocks to Buy: TerraForma (TERP)
Over the past year, investors who held on to TerraForma (NASDAQ:TERP) have seen their initial investment nearly double. While past performance doesn’t necessarily predict future gains, TERP looks like a solid income investment far into the future.
During its first few years on Wall Street, TERP was aggressively spending, which significantly jeopardized its dividend payments and put its balance sheet in a precarious position. However, those investments are starting to pay off as the company has seen an influx of cash that it has used to shore up its balance sheet and raise its dividend payments.
Right now, TERP stock offers a 4.8% dividend yield, but that figure is likely to rise over the next few years. TERP management is planning to up its dividend payments by between 5% and 8% each year through 2022, making it an attractive choice for income investors.
SunPower (NASDAQ:SPWR) stock represents more of a pure play on the rise of solar energy among the masses. The firm has positioned itself as a market leader in the solar panel space, and its recent move toward creating lower cost panels means its addressable market is growing rapidly.
The firm’s A-Series panel technology is likely to grow margins in the coming quarters as the panel is cheaper to make and more efficient than previous technology. Plus, SPWR is working to expand its services for homeowners with energy storage features and smart services in an attempt to make solar power more appealing.
The risk with SPWR stock is that the firm isn’t yet profitable, so you have to believe in management’s plans to increase profitability and grow marketshare to eventually become profitable.
First Solar (FSLR)
First Solar (NASDAQ:FSLR) was hit hard by lackluster Q3 results this week, but if you’re going to take solar stocks on board you’ve got to expect a bit of volatility. FSLR’s poor results were caused by higher-than-expected costs as well as stiff competition from fossil fuels, which have seen their prices trend downward this year.
However, the drop in FSLR’s share price makes for a good entry point for long-term investors. First Solar has a lot of potential growth in the year ahead as the industry is expected to recover significantly once the trade tensions have cleared.
Solar panel installations are expected to continue rising through 2023, with tax credits playing a role in making the technology more affordable. While Q3 was admittedly disappointing, things are looking up for the future. Management raised its estimate for full-year operating income to somewhere between $320 million and $370 million from its previous guidance of between $290 million and $340 million.
SolarEdge Technologies (SEDG)
SolarEdge Technologies (NASDAQ:SEDG) has carved out a valuable spot among solar stocks — the firm makes power optimizers and inverters for solar systems. SEDG benefits from the fact that its business has high margins when you compare it to some of the other companies on this list. The firm has been able to maintain margins above 30% consistently.
A big part of the reason for that is that SEDG stock doesn’t have many competitors. Of course, if the trade war with China ends over the next few months that could change as it would allow Chinese firms to more easily sell to SolarEdge’s customers.
For now, though, SEDG looks like one of the safest, most profitable bets in the industry.
You can’t talk about growth in the solar space without including JinkoSolar (NYSE:JKS) stock, a Chinese solar firm. Chinese electric demand is expected to rise 6% this year as the middle class swells and technology-driven energy needs continue to grow. JinksSolar will be able to capitalize on this trend as the world’s largest solar panel manufacturer. The firm shipped 11.4 GW last year, far surpassing any of its competitors.
Plus JKS stock has direct access to the Chinese population without the added cost of shipping or tariffs. Its size and scope mean it’s likely to remain a top solar firm for the foreseeable future and the growing trend toward renewable energy will likely continue to boost the firm’s bottom line.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.