Solar stocks could be in for a very lucrative 2022. Among the various sources of renewable energy, solar seems to have significant adoption potential.
One of the key reasons is a sharp decline in solar cost. It’s estimated that the cost of solar energy has dropped by 70% in the last decade. Even with this positive factor, solar power accounts for just 3% of electricity generation in the United States. This is likely to change and solar stocks are worth considering for the long-term portfolio.
To put things into perspective, the Biden administration has an ambitious plan for solar power adoption. The Department of Energy believes that solar energy can account for 40% of U.S. electricity by 2035. Further, solar energy is likely to account for nearly half of the nation’s electricity by 2050.
Considering the ambitious solar power adoption target, solar stocks are likely to remain in the limelight. Importantly, solar companies can witness accelerated growth in the next few years as the administration pushes for wider adoption of solar energy.
Let’s therefore look at four attractive solar stocks that can benefit from the positive industry tailwinds.
- First Solar (NASDAQ:FSLR)
- Canadian Solar (NASDAQ:CSIQ)
- SunPower (NASDAQ:SPWR)
- Enphase Energy (NASDAQ:ENPH)
4 Best Solar Stocks to Buy: First Solar (FSLR)
FSLR stock has been sideways for year-to-date 2021. Considering the impending industry growth, the stock looks attractive at a forward price-to-earnings ratio of 25.0.
As of December 2020, First Solar had an expected module shipment backlog of 10.8GW. The backlog has increased to 17.1GW as of July 2021. Further, the company has 9.2GW in mid-to-late-stage opportunities. This provides clear revenue and cash flow visibility.
First Solar is also undertaking a 3GW expansion in Ohio with production expected to commence in the first half of 2023. Additionally, the company expects 3GW expansion in India to be completed by the end of 2023. These factories are expected to have a lower environmental footprint and an expected lower cost-per-watt.
With cash and equivalents of $2.1 billion, the company is well-positioned to invest in expansion. First Solar also expects to end 2021 with a cash balance of $1.4 billion. The company is therefore fully financed for the next 12-18 months.
Overall, FSLR stock looks attractive after being in a phase of consolidation. The company has a healthy balance sheet and its expected module shipment seems to be accelerating. A break-out on the upside seems likely with positive industry tailwinds.
Canadian Solar (CSIQ)
CSIQ stock is another interesting name among solar stocks. For the current year, the stock has declined by 32% and it seems like a good buying opportunity.
For Q2 2021, Canadian Solar reported revenue of $1.4 billion, which was higher by 106% on a year-over-year basis. It’s worth noting that for 2020, the company had reported module shipments of 11.3GW. For the current year, module shipments are expected in the range of 16-17GW.
Therefore, revenue growth is likely to remain strong.
From a balance sheet perspective, the company reported cash and equivalents of $814 million as of Q2 2021. Its leverage was relatively high at 3.8. However, with a healthy EBITDA debt servicing is likely to remain smooth. With the module shipment pipeline providing clear EBITDA visibility, debt servicing is unlikely to be a concern.
It’s also worth noting that Canadian Solar reported module capacity of 16.1GW as of 2020. By the end of 2021, the company expects capacity to increase to 22.7GW. This positions the company for further top-line growth in 2022.
I also like the fact that Canadian Solar is well diversified from a geographical perspective. For 2020, the company reported 35% revenue from the Americas, 47% from Asia and 18% from Europe and others.
Overall, CSIQ stock looks attractive even with some geopolitical and regulatory headwinds.
Best Solar Stocks: SunPower (SPWR)
SunPower is a provider of solar solutions in the residential and light commercial segment. Like most solar stocks, SPWR stock has been sideways to lower in 2021.
However, business developments remain positive and the stock is poised for reversal in the coming quarters.
The residential segment is likely to remain a key growth driver for SunPower. For Q2 2021, the company reported 67% year-over-year growth in residential bookings. During the quarter, the company added 13,000 new customers. The company has a healthy total installed base of 376,000 customers.
SunPower believes that with the passage of 30% investment tax credit, solar energy is likely to be cheaper than residential utility rates by 2026. Therefore, there is a big addressable market considering the cost advantage.
Additionally, the growth of the electric vehicle industry in the United States is another catalyst. The company already has a partnership with Wallbox as a preferred solar and charging installation partner.
From a financial perspective, the company reported an adjusted EBITDA of $22 million for Q2 2021. For the prior year’s comparable quarter, adjusted EBITDA loss was $4 million. As EBITDA margin improves, the stock is due for upside.
Overall, SunPower currently has 500MWH of FTM storage projects contracted or in the pipeline. With rising adoption of solar energy, the pipeline is likely to remain robust. SPWR stock is therefore worth accumulating.
Enphase Energy (ENPH)
ENPH stock seems like an attractive name with a focus on the residential solar segment. Recently, KeyBanc analyst Sophie Karp initiated coverage with an “overweight” rating on the stock. KeyBanc has a price target of $179 for the stock, which implies a potential upside of about 15% from its current $158 price.
As an overview, Enphase is among the leading microinverter companies. As of June 2021, the company had shipped more than 182MWh of its energy storage system.
It’s worth noting that as of 2020, the company had a solar addressable market of $4.1 billion. With new products in the pipeline, the company believes that the addressable market will increase to $14.1 billion by 2023. This will provide ample headroom for revenue growth.
For Q2 2021, Enphase reported revenue growth of 152% to $316.1 million. For the same period, gross margin was 40.4% and expanded by 190 basis points on a year-over-year basis. Clearly, growth has been robust and this explains the point that ENPH stock trades at premium valuations.
As of June 2021, the company reported cash and equivalents of $1.3 billion. This provides flexibility to pursue aggressive growth and product innovation.
Further, for the first half of 2021, the company reported operating cash flow of $144.1 million. As cash flows accelerate, the stock is poised to move higher.
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. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.