With little more than a month until 2021 begins, solar stocks have showed mixed performance this year.
Companies that posted stellar quarterly results traded recently at new highs. By contrast, solar investors seriously punished companies for posting weak results and disappointing outlooks. But despite the varying results for the quarter, investors may choose from these solar stocks that could see big growth in 2021.
Here are 7 solar stocks to buy hoping for a bright new year:
- MasTec (NYSE:MTZ)
- Enphase Energy (NASDAQ:ENPH)
- SunPower (NASDAQ:SPWR)
- First Solar (NASDAQ:FSLR)
- SolarEdge Technologies (NASDAQ:SEDG)
- Sunrun (NASDAQ:RUN)
- Canadian Solar (NASDAQ:CSIQ)
Some of these picks aren’t direct solar energy producers, but plays whose prospects still depend on solar stock outlook improving.
MasTec is an engineering and construction firm. Investors should look at it as a diversified business whose growth catalysts in both communication and clean energy will lift its value in the future. As one of the biggest clean energy contractors in the country, the firm specializes in such segments including solar farms, wind farms and biomass facilities.
MasTec is a new player in the solar energy space. Historically, it has been in the wind business. Although it only joined the solar space less than a year ago, CEO Jose Mas said it believes the business will exceed the size of its wind business in the next few years. Mas said on the recent Q3 2020 earnings call that solar is going to fare well in 2021, especially when compared to this year.
As shown above, MasTec scores well on value, growth, quality and sentiment. Despite the stock price more than doubling from April lows, the stock still has upside for investors due to its future growth acceleration.
Enphase Energy (ENPH)
Enphase Energy added around $25 to its stock price after posting strong Q3 results. Its adjusted gross margin of 41% is above last year’s 36.2%. It shipped around 478 megawatts DC, or 1,442,743 microinverters in the period.
Enphase is the world’s leading supplier of micro inverter-based solar-plus-storage systems. The Enphase Encharge 10 and Encharge 3 storage systems are examples of its power backup solution for homeowners. CEO Kothandaraman expects gross margin will fall in the 35% range. And since the Q4 capacity of 50-megawatt hours is mostly booked, the company has clear growth ahead in the next few quarters.
Enphase has an unfavorable value score, but its growth and quality more than make up for that.
SunPower is trading on a strong uptrend, reaffirmed by a solid third-quarter report. The company benefited from strong second-half sales growth for its rapid solar plus storage growth products.
Profits are expanding because of improvements in its loan/lease gross margins. With new homes setting both backlog and bookings records, investors can’t stay on the sidelines when it comes SunPower stock. In 2021, SunVault, a storage and services offering, will add $100 million to SunPower’s 2021 revenue.
In Q3, the company managed to add 10,519 customers, have 50,000 new homes in backlog, and drive most sales from online or virtual sales methods despite the challenges of a global pandemic. Since gross margin trended higher since Q2/2019, investors should expect profits expanding as revenue rises.
SunPower forecast GAAP net income in the range of $11-$21 million in the fourth quarter. Net income will be as high as $200 million for the fiscal year 2020. On simplywall.st, SPWR stock has a fair value of $25.25. Conversely, the average price target is $15.59 (according to Tipranks).
First Solar (FSLR)
Trading near its yearly highs, First Solar is no bargain stock, but still one to hold as prospects keep improving.
The company posted year-to-date bookings of 3.8GW as of September 30. North America represents the biggest market for booking opportunities, with Europe coming in second. The total opportunity is 8.3 GW.
In the third quarter, CFO Alex Bradley said gross margins were around 29.5%. The company benefited from a drop in its warranty liability worth $20 million. End of life recycling also fell by $19 million.
Capital expenditure investments will strengthen First Solar’s prospects. While it searches for the most disruptive, lowest cost factory, capital expenditure per watt will come in lower for its Series 6 technology. CEO Mark Widmar said that market demand for Series 6 is still strong, as the company posted record quarterly production.
Solar investors ought to hold FSLR stock.
SolarEdge Technologies (SEDG)
A disappointing third-quarter report and outlook from SolarEdge sent shares of SEDG sharply lower after earnings.
The company posted revenue falling 17.7% year-on-year to $338.1 million. The GAAP EPS of 83 cents beat consensus estimates. Still, at a forward price-to-earnings of over 60 times, SEDG stock needs to fall further before investors start a position.
The solar business grew by 1% from last year to $312.5 million. Non-GAAP gross margin for the solar business inched higher to 34.8%, up from 33.8% sequentially but down from 35.4% last year.
SolarEdge is a 2021 story. The stock valuations moved faster than the company’s fundamental strength. For example, it forecast revenue in the range of $345 million to $365 million. This is not much growth from Q3. Furthermore, non-GAAP gross margins will be within the range of 34% to 36%. Again, SEDG is not demonstrating a profit expansion.
Buy SEDG stock in 2021.
After peaking at over $75, Sunrun began trading in a downtrend since October. The strong Q3 earnings report signals this solar energy stock has a bright future ahead.
Sunrun posted a 20% increase in customers, to 326,000. At 109 megawatts deployed, this is a 40% sequential increase. CEO Lynn Jurich said, “We are at the early stages of significant innovation in electrifying our buildings and transportation.” As consumers associate the brand with powering the home with renewable energy, Sunrun is the stock to own.
Sunrun increased in size after it acquired Vivint Solar, with a customer base now over 500,000. So, the battery installation growth of over 45% Y/Y reaffirms its strong business momentum.
The company’s customer margin of around $6,500 in Q3 is a good measure of its business strength. As rolling blackouts in California and the Northeastern U.S. potentially increase, Sunrun will supply homes with the essential power at that time.
Canadian Solar (CSIQ)
Canadian Solar forecast of strong demand in 2021. Investors should buy the stock even though shares more than doubled from the summer lows. The company posted Q2 module shipments of 2.9 GW. The gross margin improved to 21.2% compared to 17.6% last year.
For Q3, Canadian Solar expects revenue of $840 million to $890 million. Total module shipments will be 2.9 – 3.1 GW while gross margin will come in lower at 14% to 16%. In 2021, management expects strong demand. If the firm can improve its margins, profits will grow, too.
COO Yan Zhuang said, “We are benefiting from a demand rebound across most of our markets, with our order backlog for the second half of 2020 and even next year already exceeding our previous expectations.” CSIQ will continue facing polysilicon supply disruption and shortage in the near-term. But as capacity expands, vertical integration in its module business will allow it to capture a bigger global market share.
Disclosure: On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.