Renewable energy stocks have witnessed a strong rally in the last few quarters. One reason is the new administration in the United States, which has committed $2 trillion towards building the clean energy infrastructure.
Additionally, this renewable energy growth is a global trend. And that implies a big addressable market for companies in the sector.
Overall, rapid strides have already been made. For example, “total installed wind and solar PV capacity is on course to surpass natural gas in 2023 and coal in 2024.”
And investments are far from over.
Frost & Sullivan’s analysis suggests that around $3.4 trillion will be invested in renewable energy by 2030. And a bulk of the investment will be in wind and solar energy.
So, with big investments, renewable energy stocks will remain attractive in the coming years. That said, let’s talk about seven renewable energy stocks that seem well-positioned to benefit from the multi-year industry tailwind.
- Canadian Solar (NASDAQ:CSIQ)
- Vestas Wind Systems (OTCMKTS:VWDRY)
- Ocean Power Technologies (NASDAQ:OPTT)
- NextEra Energy (NYSE:NEE)
- Polaris Infrastructure (OTCMKTS:RAMPF)
- TPI Composites (NASDAQ:TPIC)
- Sunrun (NASDAQ:RUN)
Renewable Energy Stocks: Canadian Solar (CSIQ)
Among renewable energy stocks, CSIQ stock looks undervalued. Even after a rally of 194.5% in the past year, the stock trades at a price-earnings (P/E) ratio of 13.4. And analyst estimate points to annual average earnings growth of 32% over the next five-years. With a P/E-to-growth ratio of less than one, there is upside potential.
In terms of the growth outlook, the company’s shipments for fiscal year 2020 were approximately 11.3GW. And for this year, shipments are likely to increase to 18-20GW. With solar energy being touted as the “king of electricity,” strong shipment growth is likely in the coming years.
At the same time, the company’s gross margin has seen sustained expansion. For the third quarter of 2020, the company reported a gross margin of 19.5%. With expansion in key margins, the company has successfully de-leveraged in the last few years.
Canadian Solar is also well diversified from a regional perspective. As of Q3 2020, the company derived 47% revenue from Asia and 53% from developed markets. That said, China and India are likely to be key growth drivers in emerging markets.
Overall, CSIQ stock trades at attractive levels for fresh exposure. I would expect the stock to touch new all-time highs in the next few quarters.
Vestas Wind Systems (VWDRY)
If I had to create a portfolio of renewable energy stocks, I would be overweight solar energy stocks. However, there are other interesting plays with the renewable energy segment. Vestas Wind Systems is one name to consider among stock in wind energy sub-segment. VWDRY stock has moved higher by 123.5% in the last year and pays an annual dividend of 46 cents.
A key reason to like Vestas Wind is the company’s clear growth outlook. For FY2020, the company reported a total order backlog of 43 billion euros. Furthermore, for Q4 2020, the company’s order intake was 5.6MW — which was higher by 25% on a year-over-year basis.
Therefore, the backlog provides clear revenue and cash flow visibility. Furthermore, it seems like order intake is accelerating based on Q4 2020 numbers. If strong order intake sustains, the stock is poised to trend higher.
Moreover, the Global Wind Energy Council believes that wind energy will achieve record growth globally over the next five years. The uptick in the company’s order intake might just signal the beginning of accelerated growth.
Collectively, Vestas Wind has already been delivering positive free cash flows. And with top-line growth, FCF is likely to accelerate. This will translate into higher dividends. Therefore, VWDRY stock is an attractive name among renewable energy stocks for growth as well as dividends.
Renewable Energy Stocks: Ocean Power Technologies (OPTT)
I have already talked about solar and wind energy. Let’s also talk about a small-cap that’s operating in the wave-energy based renewable energy. OPTT stock has already skyrocketed by nearly 940% in the past year. But some speculative position in the stock can be considered.
Ocean Power has an early mover advantage in the wave-energy business. And with several patents and products, it remains to be seen if Ocean Power can grow.
One of the company’s products is PB3 PowerBuoy. It’s a floating system to generate power from ocean waves. Another interesting product is the hybrid PowerBuoy, which is a floating system that can generate power from solar panels.
From a financial perspective, the company has liquidity of $80.4 million. This allows the company to increase the product pipeline and addressable market. Also, Ocean Power recently acquired 3Dent Technology. The latter is an offshore energy engineering and design services company. So, as the company’s offshore energy solutions expand along with market presence, there is visibility for long-term value creation.
At a current market capitalization of $196 million, OPTT stock is attractive for exposure. The stock has corrected significantly from all-time highs. Another rally is likely if the company can secure multi-unit orders.
NextEra Energy (NEE)
After discussing about a small-cap, let me now shift focus to a big player. NEE stock trades at a market cap of $143 billion and is an attractive name among renewable energy stocks.
NEE stock has been relatively sideways in the last six months and an upside looks imminent. The stock also offers an attractive annual dividend of $1.54.
Coming to the business, NextEra is the world’s largest producer of wind and solar energy. Last year was a record year for the company with 7,000MW in backlog addition and 5,700MW of project commissioning.
However, the part of growth is still to come. Over the next three years, the company expects to construct 23 to 30GW of new renewables. At mid-range of the guidance, it would imply an annual project commissioning of approximately 9GW.
For FY2020, the company reported operating cash flow of $7.9 billion. Considering the executing pipeline over the next three years, OCF is likely to increase significantly. And this can potentially translate into sustained growth in dividends. In particular, Florida Power & Light is likely to remain the cash flow machine for the company.
So, for investors bullish on the renewable energy sector, NEE stock is a must-have for the portfolio.
Renewable Energy Stocks: Polaris Infrastructure (RAMPF)
RAMPF stock is another promising small-cap name among renewable energy stocks. An interesting fact is that the stock offers an attractive dividend yield of 3.7%.
Polaris Infrastructure is focused on geo-thermal and hydro electricity projects in Central and South America. The company’s assets include a geothermal power plant with an installed capacity of 77 MW. In addition, the company has three hydroelectric power plants in Peru with a capacity of 32MW.
It’s important to mention that the company reported revenue of $74.7 million for FY2020. For the same period, the company’s operating cash flow was at $48.4 million. With healthy cash flows and a balance sheet cash buffer of $60.1 million, dividends are likely to sustain.
In February 2021, the company also raised funds of 51.8 million Canadian dollars. This is an indication of the company’s intent to pursue expansion projects, which will accelerate top-line growth. As a matter of fact, the company has talked about acquisition initiatives as one of its short-term goals.
Overall, I like RAMPF stock for stable dividends and the possibility of accelerated growth. As the company ramps-up its cash position. Furthermore, at a trailing 12-month P/E ratio of 9.4, the stock seems undervalued.
TPI Composites (TPIC)
After touching an all-time high of $81, TPIC stock currently trades at $50. However, analysts have an average price target of $61 for the stock — which would imply a 21% upside from current levels.
TPI Composites is a leading wind-blade manufacturer and for FY2020, the company reported revenue of about $1.7 billion. On a YOY basis, revenue and EBITDA growth was in the double-digits.
One reason to like TPI Composites is a clear revenue visibility. As of FY2020, the company had $4.6 billion in contract backlog through FY2024. The backlog is in countries like United States, China, India, Mexico and Turkey. Therefore, the company is well-diversified from a geographical perspective.
Another point to note is that for the past year, the company reported an adjusted EBITDA margin of 3.6%. For the year, TPI has guided for revenue of $1.8 billion and an adjusted EBITDA of $123 million. This would imply an EBITDA margin of 6.8%. As wind blade capacity increases in the coming years coupled with higher capacity utilization, EBITDA margin is likely to expand further.
It’s worth noting that the company is also working with electric vehicle (EV) manufacturers “to develop innovative composite solutions for vehicles.” The EV market will continue to grow at a robust pace in the next decade. So, in the next few years, this segment can deliver value.
Renewable Energy Stocks: Sunrun (RUN)
RUN stock has surged by 439% in the last year. However, valuations seem to be compelling for fresh exposure to the stock.
Recently, the stock was upgraded by Morgan Stanley to a price target of $86. This would imply an upside potential of 62% from current levels of $53. According to Morgan Stanley’s Stephen Byrd “…the company’s position as a key beneficiary of upcoming clean energy legislation, surging consumer interest in rooftop solar and energy storage, and falling credit spreads on its debt financings.”
The company is a provider of residential solar, storage and energy services. Talking about the potential market size, there are currently 2.4 million homes with solar. By FY2030, it’s expected that 11 million homes will have solar. This presents a big growth opportunity over the next decade for Sunrun.
For FY2020, the company reported revenue of $922 million and an operating loss of $465 million. Additionally, cash used in operations for the same period was nearly $318 million. The company’s cash burn widened in FY2020 on a YOY basis, and this is one concern even as top-line growth remains strong.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio.