One of the fastest ways to find hot stocks to own for the future is to look through the holdings of exchange-traded funds (ETFs) — particularly ones that are focused on companies building a greener future.
Back in March, InvestorPlace’s David Moadel highlighted some reasons an investor might want to own one of these ETFs, the iShares Global Clean Energy ETF (NASDAQ:ICLN). Moadel pointed out that President Joe Biden and his administration are committed to making a sustainable America, undertaking several green initiatives.
ICLN tracks the performance of the S&P Global Clean Energy Index, a collection of stocks that produce energy from solar, wind and other renewable sources. Moreover, the ETF holds 84 stocks. Its top 10 positions account for almost 50% of its $5.54 billion in total net assets.
My task here is simple. I want to select seven hot stocks for a greener future. To do so, I’m limiting my choices to this ETF’s most promising holdings.
That’s going to be a challenge. After all, ICLN is down about 22% year-to-date (YTD). But that doesn’t mean this fund has no good names to offer.
So, without further ado, here are seven hot stocks that are helping build a greener future:
- Xcel Energy (NASDAQ:XCEL)
- Nextera Energy (NYSE:NEE)
- Daqo New Energy (NYSE:DQ)
- Idacorp (NYSE:IDA)
- Shoals Technologies Group (NASDAQ:SHLS)
- Hawaiian Electric Industries (NYSE:HE)
- Sunpower (NASDAQ:SPWR)
Hot Stocks: Xcel Energy (XCEL)
First up on our list of hot stocks, this Minneapolis-based utility operates several subsidiaries in eight different states: Minnesota, Colorado, Wisconsin, Texas, New Mexico, Michigan, South Dakota and North Dakota. Xcel Energy has 3.7 million electricity customers and 2.1 million natural gas customers through its four regulated operating companies.
On Apr. 29, CEO Ben Fowke reported during the company’s first-quarter 2021 conference call that the mid-February storm in Colorado cost Xcel close to $1 billion. Now, the company plans to recover those costs from customers over the next 24 months.
Despite that $965 million price tag, though, Xcel reported a profit of $362 million in Q1. That was 23% higher than a year earlier. The top line also grew by 26% to $3.54 billion. What’s more, this company’s guidance for 2021 predicts earnings per share (EPS) of $2.95 at the midpoint. That’s 6% higher than the $2.79 per share XCEL earned in 2020.
XCEL stock is also promising from a greener future perspective. For example, Fowke noted the company has significantly reduced its carbon footprint in recent years. He stated the following in the earnings report:
“We are also pleased to have achieved a significant milestone, reducing carbon emission 51% from 2005 levels, bringing us more than halfway to our vision of delivering 100% carbon-free electricity to our customers by 2050.”
In Colorado alone, Xcel plans to add “more than 5,000 megawatts [MW] of renewable energy.” Further, its goal is to generate 80% of its power from renewable energy by 2030.
Nextera Energy (NEE)
Although Nextera Energy is not doing the best YTD — today at -2.6% — it’s still one of my favorite utilities committed to clean energy. In November 2020, I argued that the renewable energy push made NEE stock a must-own. Despite the entire sector’s underperformance over the past three months (ICLN is down 29%), Nextera is a winning long-term bet.
“The most impressive highlight of its earnings report [Q1 2020] was that it finished the quarter with a backlog at NEER of more than 15,000 megawatts, which is more than the current renewables portfolio,” I wrote on Nov. 16.
On Apr. 21, NEE reported its Q1 2021 results and they were solid, with adjusted earnings per share up by 14% year-over-year (YOY) to 67 cents. These results reflected a four-for-one split in October 2020.
“With the addition of 300 megawatts of cost-effective solar projects built under the SolarTogether program, FPL [Florida Power & Light] now owns and operates approximately 2,640 megawatts of solar on its combined system, which is more than any other utility in the country,” stated CEO Jim Robo.
Nextera Energy Resources added 1,750 MW to its renewables backlog during the quarter. It now has a backlog of 15,250 MW. If you could only own one utility out of the hot stocks, this should be it.
Hot Stocks: Daqo New Energy (DQ)
Normally, when I’m constructing a list of hot stocks like this one, the first place I look to are companies whose share prices have experienced recent corrections. However, by picking stocks that are mostly in positive territory for the year, I’ve unearthed several businesses I was previously unfamiliar with.
Daqo New Energy is one such company.
DQ is “one of the world’s lowest cost producers of high-purity polysilicon,” a material vital to the production of solar panels. The company’s manufacturing facility in China is capable of producing 70,000 metric tons annually.
Back in March, Daqo reported 2020 annual revenue of $675.6 million, 93% higher than a year earlier. The company also produced 77,288 metric tons of polysilicon in 2020, 86% higher than its production in 2019. This increase resulted in full-year adjusted EPS of $2.07, a 196% increase from the prior year.
What’s more, the company’s polysilicon sales in Q4 alone came to an impressive 23,186 metric tons, the highest quarterly sales volume in its history. On these results, CEO Longgen Zhang said the following:
“I have been in the solar industry for over a decade, and the prospects for the solar industry have never been brighter. Driven by the dual trends of solar grid parity and the urgent need to address climate change, the industry is on the cusp of undergoing tremendous growth over the next few years without the need for government subsidies.”
All told, DQ stock is ideally positioned to benefit from the incoming growth in solar power. That’s an excellent position to be in.
I’ve only driven through Idaho once in my life. Needless to say, I used to know very little about the state, other than its famous floating golf green at the Coeur D’Alene Resort.
But now I know a little more. It turns out that Idacorp is a holding company that owns the Idaho Power Company, a utility which aims to deliver 100% clean energy by 2045. In 2020, Idacorp had annual revenue of $1.35 billion and an EPS of $4.69. IDA stock also has a dividend payout ratio of a reasonable 59.21%.
Idaho Power has more than 580,000 customers spread across Idaho and eastern Oregon. Its customer base delivers power to 71% of Idaho residents, according to the company’s Q1 2021 investor presentation (Page 4). Approximately 47% of its revenue is residential in nature, followed by 25% commercial, 15% industrial and 13% irrigation.
Part of what lands IDA on this list of hot stocks, though, is its commitment to clean energy. For example, the company ceased operating its coal-fired plant in Boardman, Idaho, back in October (Page 18). In 2020, it generated 60% clean energy, including 11.1% from wind, 4.1% from solar and 41.7% from hydroelectric.
When it comes down to it, you probably won’t get rich owning IDA stock. However, if you live in Idaho and are a customer of Idaho Power, it’s an excellent way to pay yourself first.
Hot Stocks: Shoals Technologies Group (SHLS)
Shoals Technologies Group’s products are the middleman between solar panels and clean energy. More specifically, this name is a leader in electrical balance of system (EBOS) solutions for energy projects in the United States. In a nutshell, their ESOS solutions carry electric current from solar panels to inverters and, ultimately, the power grid.
Shoals’ website does a good job explaining why its sales have grown by 69% over the past two years to $175.5 million with $33.8 million in net income. The company notes that it was “the first company in the industry to successfully commercialize ‘plug-n-play’ EBOS systems that use simple push connectors rather than the wire ‘crimps’ used in conventional systems […] Using push connectors allows our system to be installed by general labor rather than electricians.”
Of course, I’m not a rocket scientist, but even I can figure out why that kind of flexibility would be attractive to businesses. This is a big reason why SHLS stock has landed on this list of green hot stocks.
That said, Shoals hasn’t been a public company for very long. In fact, the company listed its shares at the end of January, selling 88.6 million at $25 apiece (Page 17). It also received over $270 million in net proceeds and used that capital to buy common units in Shoals Parent LLC, the partnership operating the company. Shoals Parent then used $150 million of those funds to repay debt.
Fresh on the market, I’ll be paying close attention to the progress of SHLS stock in the quarters to follow.
Hawaiian Electric Industries (HE)
Next up on this list of green hot stocks is HE stock. When Hawaiian Electric Industries says its “diversified business model provides the financial resources to invest in the growth of our company and the promise of Hawaii’s future, while maintaining a consistent dividend,” it’s not kidding.
HEI is the holding company for three subsidiaries: Hawaiian Electric, American Savings Bank and Pacific Current. Together, these three businesses generated $198 million in net income in 2020 — 9% lower than a year earlier. However, Hawaiian Electric experienced an increase which was offset by lower revenues from HEI’s banking unit.
Hawaiian Electric’s three regulated utilities provide electricity to 95% of the state. Moreover, Hawaii has mandated that its power companies produce 100% renewable energy by 2045. In this spirit, Hawaiian Electric has committed to converting its entire fleet of vehicles to electric vehicles (EVs) by 2035.
On top of that, as part of its commitment to renewable energy, 36% of Oahu single-family homes also now have rooftop solar. In fact, across the five islands it serves, 20% of the company’s customers have rooftop solar. For 2020, HEI’s goal was to generate 30% of its sales from renewable sources. It surpassed that at 35%. Now, the company plans to hit 70% by 2040 and 100% by 2045.
Finally, HE stock has paid dividends every year since 1901. Altogether, this sustainable pick seems to be as long-lasting as they come.
Hot Stocks: Sunpower (SPWR)
That’s why it owns 52% of Sunpower, a vertically integrated provider of solar panels and systems as well as a leading distributed generation (DG) electricity providers.
In 2021 and 2022, Sunpower plans to grow sales by 35% by expanding the total addressable market (TAM) for residential products while increasing behind-the-meter (BTM) storage revenues in the commercial and industrial markets.
Currently, the residential solar market in the U.S. is approximately $65 billion (Page 5). By investing in its business, Sunpower believes it will go after a market four times greater. Sunpower currently has 351,000 total residential customers and added 13,000 in Q4 2020 alone.
Of course, Covid-19 has changed the way this company does business. At the end of 2019, it generated 5% of its sales digitally; by the end of the Q4, this increased to 85%. A lot of that has to do with the company’s do-it-yourself solar roof design and visualization tool.
“[W]e have automatically generated more than 90,000 designs for homeowners. What’s more, our sales conversion rate with SunPower Design Studio is 50% higher than other entry points,” the company noted in its 2020 annual report.
Back in early March, when SPWR stock was trading around $38, I suggested that investors wait to buy this name in the mid-to-high $20s. Today, it’s trading around $24.
While I do think this company needs to become more profitable, I also believe that Sunpower is in the right business at the right time. This pick of the hot stocks ought to benefit long-term from the move toward cleaner energy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.