Why should you invest in renewable energy? There isn’t a single answer, but here are three reasons to consider. First, it’s what the global economy is shifting toward, and the renewable energy market will continue to grow. Second, environmental concerns are growing, and renewable energy is a way to address those concerns. Third, President Joe Biden’s administration has shown strong intent to support renewable energy. This is an inevitable trend, so renewable energy stocks are worth considering to anyone who wants their investments to stay relevant.
A recent report states that the global renewable energy market will grow from $614 billion in 2020 to $1.13 trillion in 2027, representing a compound annual growth rate (CAGR) of 9.1%. This growth is attractive but not too excessive and could be sustainable.
There are also large companies such as Microsoft (NASDAQ:MSFT) prioritizing renewable energy.
The following three renewable energy stocks are prime candidates to analyze and consider:
- Clearway Energy, Inc. (NYSE:CWEN)
- NextEra Energy Partners, LP (NYSE:NEP)
- SunPower Corporation (NASDAQ:SPWR)
Renewable Energy Stocks: Clearway Energy (CWEN)
Clearway Energy, a renewable utilities company with a market capitalization of $2.9 billion, engages in the ownership of “contracted renewable and conventional generation and thermal infrastructure assets.” It operates through three segments: conventional generation, thermal and renewable.
The trailing-12-months price-to-earnings ratio (TTM P/E) is 51.81 and may seem high. But the stock has a forward dividend rate and yield of $1.32 and 5% respectively.
The company reported operating revenue of $1.199 billion in 2020, a 16% gain from 2019’s $1.032 billion. Clearway’s net income is volatile, going from a loss of $11 million in 2019 to a gain of $25 million in 2020. Free cash flow is very strong as the company has positive free cash flows for all years between 2016 to 2020. There is a lot of expected growth too; Zacks estimates an expected EPS growth for the next 3 to 5 years of 25.66%.
The stock is down almost 20% in 2021.
NextEra Energy Partners (NEP)
Another renewable utilities company, NextEra has a market cap of $5.5 billion. NEP stock has a TTM P/E ratio of 14.23 and a dividend yield of 3.42%. NextEra Energy Partners LP engages in the acquisition, management, and ownership of contracted clean energy projects with long-term cash flows. It owns interests in wind and solar projects in North America, as well as natural gas infrastructure assets in Texas.
Looking at the fundamentals for the past five years, I like the sales growth, which seems to be consistent. The net income trend tells another story. In 2019 and 2020 net income was negative. Looking at free cash flow, the company had some unusual expenses in 2019 and 2020. I believe this trend will not continue further. EBITDA (earnings before interest, taxes, depreciation and amortization) growth is strong and positive.
With an expected EPS growth for the next 3-5 years of 18.44% I believe there is now both growth and value for the stock, which is up about 8% in 2021.
Renewable Energy Stocks: SunPower Corporation (SPWR)
SunPower is a solar company with a market cap of $4 billion. SPWR stock has a TTM P/E ratio of only 8.36. Unlike the other two stocks I’ve discussed, it doesn’t have a dividend, but there are still plenty of things to like about it. SunPower engages in the design, manufacture and delivery of solar panels and systems. It operates through the following business segments: residential, commercial and power plants.
The stock is up about 271% in the past year but is down about 9% in 2021. The expected EPS growth for the next 3-5 years is 15.59%. The last five years have been volatile for the company, which had a negative net income for several years. The company nearly broke even in 2019 and had a positive net income in 2020.
Looking at capital expenditures for the past five years, the company invested heavily in infrastructure. Under normal circumstances, I would ignore a stock like this with negative free cash flow, but I believe in the future of solar energy.
The company is making a transition to profitability; it has invested heavily in its expansion. Its EBIT after unusual expense surged in 2020. The company is at a potential turnaround supported by its profitability trend. If you’re considering buying it, consider waiting until a strong selloff, as the stock needs to cool a bit off its rally in the past year.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com/. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.