Solar stocks as well as shares of other alternative energy sources have been hot in 2020. As markets get ready to move past the election volatility, investors now wonder what may be next for the sector under the upcoming presidency of President-elect Biden. Today’s article discusses seven solar stocks to buy for a green future.
The acceptance of solar energy by businesses and households has been increasing. Industry-watchers have noted that shares of alternative energy firms could also benefit from potential supportive environmental steps under a Biden administration. During the second presidential debate in October, Biden remarked he would “transition from the oil industry.”
According to the International Energy Agency (IEA), solar energy is renewable energy and “Renewables, including solar, wind, hydro, biofuels and others, are at the centre of the transition to a less carbon-intensive and more sustainable energy system.”
As Shon Hiatt, business professor at USC Marshall School of Business, wrote in an email to InvestorPlace:
Former vice-president Joseph Biden has committed to the Green New Deal, which calls for a ban of federal oil and gas leases, limits hydraulic fracturing on private land, and mandates 100% electrification from renewable sources of the nation’s transportation and energy systems within 10 years of enactment. He has promised on his first day of office to sign an executive order mandating federal procurement of only electric vehicles.
The increasing popularity of solar energy has several important reasons. As solar energy is derived from the sun, it is abundant, reliable, pollution free, and renewable. The technology is easy to implement, either as a single photovoltaic (PV) cell or a full solar farm. In terms of costs, it is not any more expensive than building other forms of renewable energy structures, such as windmills. Therefore, solar panels are fast emerging as a viable energy source.
The U.S. Department of Energy (DOE) cites, “Solar power is more affordable, accessible, and prevalent in the United States than ever before… [S]olar electricity is now economically-competitive with conventional energy sources in several states.”
Elsewhere, Europe aims to become “the world’s first climate-neutral continent by 2050 … In 2018, renewable energy represented 18.9 % of energy consumed in the EU, on a path to the 2020 target of 20%.” It would also be important to note that the solar energy capacity in China is the largest globally.
If you also believe individuals and businesses in the U.S. and globally will continue to gravitate toward renewable sources of power, then here are seven solar stocks to buy for the next green wave:
- Canadian Solar (NASDAQ:CSIQ)
- First Solar (NASDAQ:FSLR)
- Invesco Solar ETF (NYSEARCA:TAN)
- JinkoSolar (NYSE:JKS)
- NextEra Energy Partners (NYSE:NEP)
- SolarEdge Technologies (NASDAQ:SEDG)
- Sunrun (NASDAQ:RUN)
Solar Stocks: Canadian Solar (CSIQ)
52-week range: $12 – $44.86
Ontario-based Canadian Solar, founded in 2001, is an integrated provider of solar power products. The group manufactures solar photovoltaic modules and offers solar energy solutions. Its operations are global. CSIQ stock’s listing on the NASDAQ dates back to 2006.
When the company announced Q2 results in early August, revenue was $696 million. It exceeded previous guidance of $630 – $680 million. Net income of $20.6 million translated into earnings per share of 34 cents.
Investors were pleased to see a 17% reduction in operating expenses YoY. Its total module shipments also saw a 31% sequential increase.
CEO Dr. Shawn Qu said:
Over the past 19 years, we have built a strong foundation and track record based on technology innovation, all-around product execution, robust customer channels and prudent capital deployment… Last week, we announced the plan to list our Module and System Solutions (“MSS”) business on China’s stock market. If successful, it will give us greater access to additional, lower-cost sources of capital and allow us to grow faster at a time when we believe growth in the solar industry and market consolidation are both set to accelerate.
Year-to-date (YTD), CSIQ stock is up by 76%. The company is expected to release Q3 earnings on Nov. 19.
The shares are likely to be volatile around the earnings announcement. Investors may find better value if there is a potential decline toward the $37.50 level.
First Solar (FSLR)
52-week range: $28.47 – $97.93
Next up on this list of solar stocks is First Solar. First Solar is a global provider of PV solar energy solutions. Founded in 1999, First Solar manufactures and sells PV solar modules and offers maintenance services. It has manufacturing operations in the U.S., Vietnam, and Malaysia. The group also has a project development pipeline across the U.S. and Japan.
In late October, the group released Q3 results. Sales of $928 million meant a sequential increase of $285. Management highlighted the positive effect of international project sales and the module-sales increase to third parties.
Net income per share was $1.45. A quarter ago, it was 35 cents per share. Its cash and equivalents stood close to $1.7 billion. The company reinstated the previously-withdrawn guidance for Q4. Now management expects a quarterly revenue of $540 million to $790 million. The implied full year 2020 revenue would be $2.6 billion to $2.9 billion.
CEO Mark Widmar was pleased with the metrics and said, “We delivered strong financial results for the third quarter … The dedication we continue to witness from our associates enabled us to expand module segment gross margin, close the sales of our Ishikawa, Miyagi, and Anamizu projects in Japan, and increase earnings per share quarter-over-quarter. This result reflects the strengths of our competitively advantaged CdTe modules and vertically integrated manufacturing process.”
So far in the year, FSLR shares are up by 44%. Although the company is likely to keep growing in the coming quarters, the shares are richly valued. A potential decline toward the $82.50 level would improve the risk/return profile.
Invesco Solar ETF (TAN)
52-week range: $21.14 – $78.36
Expense ratio: 0.71%
For investors who do not want to worry about choosing individual solar energy stocks, thematic investing via an exchange-traded fund (ETF) could be more appropriate. The Invesco Solar ETF provides access to a range of global businesses in the solar energy industry.
TAN, which currently invests in 26 companies, tracks the MAC Global Solar Energy Index. About 46% of the companies are U.S.-based, followed by China (25.91%), Germany (5.67%), Spain (5.64%0, and Norway (4.32%), among others.
The top ten firms comprise around 60% of net assets. Fremont, California-based manufacturer solar PV solutions Enphase Energy (NASDAQ:ENPH), SolarEdge Technologies, Hong Kong-listed Xinyi Solar, First Solar, and China-headquartered JinkoSolar head the list of businesses.
YTD, the fund is up by 137.5%. In the coming weeks, TAN may come under short-term pressure due to profit-taking in the shares that make up the fund. Long-term investors may want to pay attention to the $70 level as a better entry point.
Solar energy is becoming more important. As Paul Brace, Clarence Carter Chair in Legal Studies and professor in the Department of Political Science at Rice University, wrote in an email to InvestorPlace, “Poll after poll shows that more Americans care about climate change than ever before, to the point where the environment is on par with “kitchen table” issues like education and taxes. A recent poll found ¾ of respondents wanted questions about climate change asked at the debate.”
52-week range: $11.42 – $90.20
JinkoSolar is an integrated provider of solar energy products. In late September, the group released Q2 results. Revenue of $1.2 billion exceeded previous guidance range of $1.1 billion to $1.18 billion. It also meant an increase of 22.2% YoY. Gross margin was 17.9%, compared to 16.5% in the second quarter of 2019.
Management highlighted that total solar module shipments went up by 31% from the first quarter of 2020 and 32% from the second quarter of 2019. Net income of $45 million translated into diluted earnings per American depositary share (ADS) of 93 cents.
CEO Kangping Chen said, “JinkoSolar delivered a strong quarter with total revenue exceeding guidance. Despite the tough economic environment around the world, total solar module shipments and gross margin for the quarter were all within our guidance range. We expect orders for the third and fourth quarters to increase.”
YTD, JinkoSolar shares are up by 178%. China is becoming increasingly more significant in terms of solar energy production and use.
Meanwhile, analysts also expect industry consolidation in the country. As the company grows, the shares could become volatile, reflecting developments in the sector in China. Long-term investors may consider buying the dips.
NextEra Energy Partners (NEP)
52-week range: $29.01 – $68.39
Florida-headquartered NextEra Energy Partners is a publicly traded limited partnership. It owns and manages clean energy projects with stable, long-term cash flows.
The group has interests in domestic wind and solar projects and natural gas infrastructure assets in Texas and Pennsylvania. NextEra Energy Partners sells the energy produced to utility companies. It is owned by Nextera Energy (NYSE:NEE), one of the largest renewable energy project developers stateside.
In late October, the company announced Q3 results. Net income was $56 million. Third-quarter 2020 adjusted EBITDA was $312 million and cash available for distribution (CAFD) was $162 million.
CEO Jim Robo was pleased with the metrics as he highlighted,
NextEra Energy Partners’ portfolio performed well during the third quarter and delivered results in line with expectations … On a year-to-date basis, adjusted EBITDA and CAFD have increased by 16% and 50%, respectively, versus 2019, highlighting the strength and diversity of NextEra Energy Partners’ long-term contracted clean energy portfolio… [W]e continue to believe NextEra Energy Partners is uniquely positioned to take advantage of the disruptive factors reshaping the energy industry.
Since the start of the year, the NEP stock price increased by 25%. From a valuation standpoint, the stock is pricey. A potential decline toward the $60 level would improve the margin of safety. Long-term shareholders would also be entitled to a dividend yield of 3.6%.
SolarEdge Technologies (SEDG)
52-week range: $67.02 – $317.88
Israel-based SolarEdge Technologies manufactures direct current (DC) optimized inverters for solar PV installations. Management highlights, the “intelligent inverter solution … has changed the way power is harvested and managed in a solar photovoltaic (PV) system. In recent quarters, the company has increased its revenue from non-U.S. markets, specifically Europe.
On Nov. 2, it released Q3 results. Revenue came at $338.1 million, down 18% from $410.6 million in Q3 2019. GAAP gross margin was 32.0%, also down from 33.9% YoY.
GAAP net income of $43.8 million translated into EPS of 83 cents. A year ago, the metrics had been $41.6 million and 81 cents, respectively.
CEO Zivi Lando commented, “Our solar business outside the U.S. reached an all-time high and the U.S. market is showing signs of return to pre-pandemic installation level.” Management expects revenue in the fourth-quarter to come between $345 – $365 million.
YTD, SEDG stock has increased by 146%. The shares are richly valued. Long-term investors of solar stocks may want to get eye a potential decline toward $210 as a better entry point.
52-week range: $7.84 – $82.42
San Francisco, California-headquartered Sunrun, founded in 2007, develops, sells and maintains residential solar energy systems such as panels and racking in the U.S. It has over 325,000 domestic customers. Many analysts regard the business as a leading company in rooftop solar systems.
On Nov. 5, the group released Q3 results for the quarter ended 30 September. Revenue was $209.8, down $5.8 million, or 3%, YoY. Net income was $37.4 million, or 29 cents per share.
CEO Lynn Jurich said, “We are at the early stages of significant innovation in electrifying our buildings and transportation. “Sunrun aims to be the consumer brand synonymous with powering your home with renewable energy… [W]e continue to lead the development of virtual power plants, including an additional contract with Southern California Edison.”
Since the start of the year, RUN shares are up by 321%. Forward P/E and P/S ratios are 70.92 and 8.36. At present, the stock is richly valued. Potential investors of solar stocks may consider buying the stock in long-run portfolios, especially if the price declines toward $50.
Competition in the residential solar space is likely to get hot in the coming years. However, the company is a dominant player and will possibly stay so for many years.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.