Alternative energy is basically synonymous with renewable energy. This group includes solar, wind, geothermal, biomass and hydropower. And this group excludes fossil fuels which have a time span for regeneration that is far beyond human lifespans.
Another defining characteristic is that alternative energy likely shouldn’t increase humanity’s carbon footprint. So, technically, nuclear power fits the bill. However, I’ll be excluding it from this list and focusing on the five types I mentioned above.
From a business and investment perspective, it’s clear that alternative energy is becoming increasingly important. That means there should be opportunity to capitalize as companies enter the space and disrupt the status quo. Renewables’ share of energy production is steadily increasing. In fact, these alternative energy sources accounted for about 12% of U.S. energy consumed in 2019.
It’s also clear that alternative energy is here to stay. It is growing and will be very profitable for investors who buy in now. The alternative energy stocks below are among the best in class, and can lead to great returns.
- American Superconductor (NASDAQ:AMSC)
- TPI Composites (NASDAQ:TPIC)
- Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI)
- NextEra Energy (NYSE:NEE)
- Iberdrola (OTHEROTC:IBDRY)
- Enphase Energy (NASDAQ:ENPH)
- Renewable Energy Group (NASDAQ:REGI)
Alternative Energy Stocks: American Superconductor (AMSC)
American Superconductor doesn’t produce wind, nor does it run the grids which energy is transferred through. The Massachusetts company’s focus is on improving the efficiency of both the grid and wind energy. As the company’s motto claims, “We don’t generate the energy. We keep it going.”
Whatever the energy source, be it it wind, solar, coal, or anything else, the resultant energy must be converted to electricity if it is added to the grid. When that energy is added to the grid, it must meet the strict voltage compliance regulations of regulators and utilities. These regulations and standards protect the integrity of the grid and keep electricity flowing.
American Superconductor has products which facilitate that process. One such system allows renewable energy plants to more reliably connect to the grid. The other system is applied to new wind turbines or retrofitted to existing ones.
AMSC stock’s share price has appreciated by 146% year-to-date, and analysts generally recommend overweight positions. The company has only 242 employees. YoY revenues grew to $21.1 million in Q2 2020 versus $14 million. The company also announced $15 million in new orders for its systems in early November.
TPI Composites (TPIC)
TPI Composites manufactures fan blades for wind turbines that generate wind power. TPIC stock has more than doubled year-to-date, the company recently recorded an earnings beat, and Wall Street rates it a nearly unanimous “buy.” For investors looking for a play on wind energy, this may very well be the stock to buy.
Q3 earnings gave investors a lot to be excited about. TPI recorded net income of $42.4 million on $474.1 million in sales. The company sold 1,038 sets (a unit which consist of three blades) globally during the quarter.
Like most alternative energy companies, TPI Composites recognizes the importance of ESG –environmental, social and governance — efforts to today’s investors, evident in this statement from its board chairman:
“The wind blades we sold in 2019 have the potential to eliminate 303 million metric tons of CO2 throughout their average 20-year lifespan, equivalent to emissions from over 64 million cars driven for a year with over 751 billion miles driven.”
Sounds like a pretty solid case for this stock in ESG-aware portfolios.
Hannon Armstrong Sustainable Infrastructure Capital (HASI)
In addition to companies that produce the things that generate alternative energy and those that store and transform the energy, there are also companies that invest in such efforts. Hannon Armstrong Sustainable Infrastructure Capital is one such name.
HASI stock comprises investments in companies in three energy markets — behind the meter, grid connected and sustainable infrastructure.
- Behind the meter essentially means projects which aim to reduce the cost associated with a given energy source.
- Grid-connected investments relate primarily to the deployment of energy onto the grid subsequent to its generation.
- Finally, infrastructure should be self-explanatory.
Perhaps most importantly, Hannon’s Q3 showed a 25% YoY revenue increase over the 2019 like period. The company carries strong profitability metrics including a net margin above 60% and a three-year revenue growth rate above 90% of peers.
HASI stock also has an associated dividend which was recently announced and will be payable in January.
NextEra Energy (NEE)
When I think of alternative energy sources, solar and wind are the sources that immediately spring to mind. NextEra Energy is the world’s largest producer of both solar and wind energy. The company has invested over $90 billion in clean energy infrastructure, which makes it the largest such infrastructure investor.
NextEra is also showing revenue, earnings, and EPS growth between Q3 2019 and Q3 2020.
As mentioned, NextEra has invested heavily in clean energy, with $90 billion to date. The company plans to invest an additional $50 billion to $55 billion through 2022. The company was recently awarded the 2020 S&P Global Platts Energy Transition Award in recognition of its efforts in alternative energy.
With such accolades, financial fundamentals, and a continued dedication to investing in clean energy infrastructure, NEE stock looks like a can’t miss moving forward.
Iberdrola is an electricity company which operates in Spain, the U.K., the U.S. and Brazil. The company operates in the U.S. through its Avangrid subsidiary which became the third-largest renewable energy operator in the U.S. in 2019 following an acquisition. The unit has renewable operations in 24 states and 10 regulated electricity companies across six states.
The company is expanding rapidly in order to solidify its position in renewables. It has undertaken eight corporate transactions during the pandemic with a clear strategy of footprint expansion in renewables.
Renewables and network fortification is the strategic aim of the firm through 2025 and where it intends to spend over 90% of gross investment.
Revenues are slightly lower than they were through the first three quarters of 2020 compared to those in 2019. Yet IBDRY stock is still up about 20% year-to-date. The firm’s clear strategy of investing in renewable growth and acquiring operations to that end should bear fruit in coming quarters and years.
Enphase Energy (ENPH)
Enphase Energy is a company that Wall Street generally believes in, and rates as “overweight.” Yet, it is clear that ENPH stock is fairly overvalued given its price-to-earnings ratio of 109.3. That P/E multiple is lower than nearly 90% of industry peers. Therefore, it’s likely that Wall Street only doesn’t rate it a more-favorable buy, rather than overweight, as they expect a market correction to pull it down in the future.
Although ENPH stock carries that high valuation, there is arguably real justification behind that high metric. Enphase Energy simply excels at investing the capital that it borrows. The company’s WACC vs. ROIC is an astounding 6.94% WACC vs. an 83.20% ROIC. Those excess returns mean that the company is value creating and should be able to create returns for investors into the future.
Once those returns translate into earnings, that PE ratio will drop and Wall Street will be completely on board. I wouldn’t wait until then because many investors rely too heavily on analyst sentiment to guide their decisions. By the time they come around, the gains will be eaten.
The company itself produces microinverters for the solar industry, and other products which allow easy installation of residential solar systems.
Renewable Energy Group (REGI)
Renewable Energy Group is a relatively small company with less than 900 employees, located in Iowa. It produces and trades biofuel and renewable chemicals. This company has many positive bellwethers pushing it forward that really make it look attractive.
Wall Street nearly rates it a unanimous “buy” and the share price has gained 123% year-to-date. The company has a rock-bottom PE ratio of 4.34, which is better than 87% of peers. Further, the company returns a massive 56.73% on capital investments that cost it only 6.63%.
It sold 176 million gallons of fuel and produced 137 million, recording EBITDA of $58 million on $576 million of sales in Q3. This company is clearly showing massive potential and can rise into the future.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.