Editor’s Note: This article is a part of our “If You Only Buy One Stock” series where we look at 2021’s most popular investing trends and have our top financial journalists make their very best pick. Click here to see more names for your must-buy list.
According to Allied Market Research, the global solar energy market is expected to be worth $223.3 billion by 2026. The sector is set to grow at a compound annual growth rate (CAGR) of 20.5%. And solar is no longer a regional phenomenon. Currently, there are over 97 gigawatts (GW) of solar capacity installed throughout the country. For perspective, that’s enough to power almost 18 million homes.
The industry has received a boost from federal programs such as the Solar Investment Tax Credit. But there’s also been a drop in the price of the equipment and installation costs that have boosted demand.
So why didn’t solar stocks move higher until last year? Many solar stocks found themselves fighting deflation of material costs. In fact, if you look at the chart of most solar stocks, they look remarkably similar.
All of the major solar companies have faced a selloff to some degree in 2021. One of the leading solar ETFs, the Invesco Solar ETF (TAN) is down about 30% from its peak in January.
The only question that clean energy investors have to ask is when to jump in? The sector is showing signs of moving higher. But some analysts say the timing may still not be right. However, whenever you decide to jump in, there are several attractive candidates.
Many Companies Have a Bright Outlook
For example, you could take a lot of the guesswork out and simply invest in an exchange-traded fund. A solid choice would be the Invesco Solar ETF that we mentioned earlier.
Another area to pay attention to is the solar panel installers. Here you can look at Sunrun (NASDAQ:RUN). The company recently purchased Vivint Solar which brings together the two largest residential solar companies.
And turning your attention to the companies that manufacture solar panels and other solar equipment bring to mind names like First Solar (NASDAQ:FSLR). In addition to manufacturing solar panels, First Solar is also involved in some of the support and maintenance for solar power operations.
Turning your attention north of the border, you can look at Canadian Solar (NASDAQ:CSIQ), which operates in much the same fashion as First Solar, also in Canada.
SolarEdge Technologies (NASDAQ:SEDG) is an Israeli company that makes power optimizers, solar inverters, and monitoring systems that support residential and commercial solar operations. SunPower Corporation (NASDAQ:SPWR) designs and builds photovoltaic cells and related solar materials.
And if you’re a speculative investor looking for an under-the-radar gem, you could consider a company such as SolarWindow (OTCMKTS:WNDW). This company uses proprietary technology that they term LiquidElectricity that applies a transparent coating of organic photovoltaic solar cells to solar panels.
The stock was trading for under $5 per share just a year ago, but has made significant gains. However, the company does not yet have a product available, so taking a position carries significant risk.
But If You Could Only Buy One, It Should Be ENPH Stock
My choice would be Enphase Energy (NASDAQ:ENPH). And not just because ENPH stock is up about 330% in the last 12 months. The reason is the company’s microinverter technology. While this sounds really technical, it has an easy-to-understand benefit that every solar panel maker will find useful.
A fundamental limitation of solar power is what to do in the evening or on cloudy days. Microinverter technology takes the direct current power from the solar panels and converts it to alternating current power. This allows efficient use of solar power during those times.
The economics make this a win for customers. And as opposed to central inverters, they make a solar installation less prone to having a single point failure take down the entire system, which makes the company a hit with solar panel installers.
And although Enphase does over 80% of its current business in the United States it is looking to expand internationally. One product that has real promise is its off-grid solar and storage system, Ensemble-in-a-Box, which is being targeted for countries like India because it does not require much infrastructure. Overall, ENPH stock is the most compelling solar stock currently on the market.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.