The bull case for alternative energy stocks is directly tied to humanity’s ability to cut back on their contributions to climate change. The Intergovernmental Panel on Climate Change (IPCC) in the UN more or less established the fact in a recent press release.
“The alarm bells are deafening, and the evidence is irrefutable: greenhouse‑gas emissions from fossil-fuel burning and deforestation are choking our planet and putting billions of people at immediate risk,” stated UN Secretary-General António Guterres, giving a “code red for humanity” during the IPCC.
While Main Street is debating how to achieve a more sustainable future, Wall Street is paying attention to clean energy stocks that focus on solar, wind, water and geothermal sources. As many countries have already pledged to be carbon neutral by mid-century under the Paris Agreement, alternative energy investments have been gaining momentum. The decarbonization of the global economy would require an estimated investment of more than $110 trillion over the next thirty years.
Governments are focusing on curbing greenhouse gas emissions by passing legislation that would boost transition to clean energy. For example, the Senate recently approved a $1.2 trillion package to help build clean energy infrastructure stateside.
With that information, here are seven clean energy stocks that could deliver long-term returns in the coming months and beyond:
- Ameresco (NYSE:AMRC)
- Atlantica Sustainable Infrastructure (NASDAQ:AY)
- Clearway Energy (NYSE:CWEN)
- Enphase Energy (NASDAQ:ENPH)
- Hannon Armstrong Sustainable Infrastructure Capital (NYSE:HASI)
- Invesco MSCI Sustainable Future ETF (NYSEARCA:ERTH)
- iShares Global Clean Energy ETF (NASDAQ:ICLN)
Energy Stocks to Buy: Ameresco (AMRC)
52-Week Range: $28.94 – $75.88
Framingham, Massachusetts-based Ameresco is a cleantech integrator that provides clean energy expertise in the U.S., Canada and the U.K. The company has completed numerous energy-saving, environmentally responsible projects with different levels of governments, housing authorities, healthcare and educational institutions, as well as commercial customers.
Ameresco released Q2 financial results in early August. Revenue was $273.9 million, a growth of 23% year-over-year (YOY). Non-GAAP net income came in at $18 million, or 34 cents per diluted share compared to $9 million, or 19 cents, in the prior-year quarter. Cash and equivalents ended the quarter at nearly $93.8 million.
On the results, CEO George P. Sakellaris commented, “We are all seeing a heightened awareness of the importance of resiliency and sustainability across all markets, and we believe this is not only impacting our business in the short-term, but that it is paving the way for outstanding long-term growth.”
According to the recent The North American Energy Service Company (ESCO) Market report, Atlas Energy Intelligence ranked Ameresco as the U.S. energy service company (ESCO) market leader by revenue for 2020-2022.
AMRC stock has returned about 30% year-to-date (YTD) and recently hit an all-time high (ATH). The shares currently trade at 45.45x consensus forward price-to-earnings (P/E) and 3.16x current sales. Given the metrics and growth prospects in the sector, interested readers should keep the stock on the radar to buy the dips.
Atlantica Sustainable Infrastructure (AY)
52 week range: $26.31 – $48.49
Dividend yield: 4.59%
U.K.-based Atlantica Sustainable Infrastructure owns and manages renewable energy, conventional power, electric transmission lines and water assets. Its business is spread worldwide.
Atlantica Sustainable issued Q2 results in early August. Total revenue increased 31% to $611 million. Net profit came in flat at $12.343 million, or 11 cents per diluted share. Cash and equivalents ended the quarter at $686 million.
In 2020, over 70% of Atlantica’s revenue came from the renewables sector. Continued investment in clean energy assets has fueled its megawatts in operation to increase 30% YOY in the first half of 2021.
As 100% of its assets are contracted or regulated, the company enjoys stable cash flows. Though it keeps some cash for growth opportunities, it aims to pay 80% of generated cash as dividends. Thus, its quarterly dividend has surged by 65% in the past four years. AY stock price supports a dividend yield of about 4.6%.
Atlantica stock hovers at $37 territory, down almost 2% YTD. But it gained 35% over the past year. Its low valuation, attractive dividend yield, and significant growth opportunities make AY stock a solid green energy investment. Forward P/E and price-to-sales (P/S) ratios stand at 32.68 and 3.54, respectively.
Energy Stocks to Buy: Clearway Energy (CWEN)
52 week range: $23.94 – $37.23
Dividend yield: 4.24%
New Jersey-based utility Clearway Energy owns and operates renewable and conventional energy generation and infrastructure assets stateside. Its power generation capacity through wind, solar, and natural gas is over 8 gigawatts.
Clearway issued Q2 results in early August. Total operating revenue surged 15.5% YOY to $380 million. The company reported a net income of $35 million, or 30 cents per diluted share, down from $47 million, or 41 cents per diluted share, in the prior year quarter. Cash and equivalents ended the quarter at $470 million.
Following the announcement, CEO Christopher Sotos commented, “Clearway’s near-term outlook remains on track as the Company’s diversified platform delivered second quarter financial results in-line with seasonal expectations.”
Clearway’s “community solar farms” offer subscriptions to households, small businesses and commercial customers in return for energy credits. As a result, consumer see lower utility bills and do not have to install solar panels themselves.
The company currently has almost 100 community solar farms in the U.S. operating or under development. Clearway Energy also develops “distributed solar” systems for larger clients such as corporations, cities, hospitals and universities.
Clearway generates cash flow primarily under long-term contracts, which allows the company to pay steady dividends. CWEN stock is around $31 and supports a generous 4.24% dividend yield.
While the shares have returned 27% over the past year, they are currently down 1.5% YTD. CWEN stock trades at 23.64 times forward earnings and 2.98 times current sales. Any potential decline below $30 would make the shares more attractive.
Enphase Energy (ENPH)
52 week range: $65.41- $229.04
Fremont, California-based Enphase Energy develops mainly home energy solutions that connect solar generation, energy storage and management on one intelligent platform.
Enphase announced Q2 results in late July. Revenue soared 152% YOY to $316 million. Non-GAAP net income of $74.7 million translated into non-GAAP diluted earnings per share (EPS) of 53 cents. Cash and equivalents ended the quarter at $1.3 billion.
On the metrics, CEO Badri Kothandaraman cited, “We reported quarterly revenue of $316.1 million in the second quarter of 2021, along with 40.8% for non-GAAP gross margin.”
The company added scalable battery storage systems to its offerings in June 2020 — a move Wall Street approves. Enphase also expanded their product offering internationally this year, starting with Germany. The battery storage integrates into Enphase Energy’s entire solar system offering. New updates are added online, allowing customers to use an app to conserve battery power and track overall system status.
Storage is poised to boost the group’s business results going forward. Enphase provided guidance that implies revenue growth to be 93% over the pandemic-impacted prior-year quarter and 9% sequentially over Q2 2021 revenue.
ENPH shares have skyrocketed more than 3,800% over the last three years. They currently trade around $155, down 12% so far this year. The stock has a forward P/E of 58.82 and a P/S ratio of 21.5, suggesting a rich valuation despite the recent pullback.
As solar generation continues to expand, Enphase is well-positioned to continue accelerating growth with a fully integrated system for homes and businesses. The shares are worth picking up at its current levels of $155.
Energy Stocks to Buy: Hannon Armstrong Sustainable Infrastructure Capital (HASI)
52-Week Range: $37.07 – $72.42
Dividend Yield: 2.53%
Annapolis, Maryland-based Hannon Armstrong provides debt and equity financing to investments in sustainable infrastructure, including energy efficiency and renewable energy. Founded in 1981, the company went public in 2013, It has funded over 225 investments so far.
Hannon Armstrong announced Q2 financial results on Aug. 5. Revenue totaled $58.9 million, up 21% compared to the prior year quarter. Distributable net investment income was $33.2 million, a growth of 64% YOY. Diluted EPS of 57 cents meant an increase of 42.5%. The company grew its portfolio by 43% YOY to $3.0 billion and managed assets by 29% YOY to $8.0 billion.
On the results, CEO Jeffrey W. Eckel cited, “We significantly grew our Earnings, Portfolio, and Managed Assets year-over-year due to our strong programmatic investment platform and dual revenue model.”
HASI issued $1 billion green bonds at 3.375% in the second quarter. This capital is to be used for funding scheduled and anticipated investments. From 2021 to 2023, the company expects the annual EPS and dividends to grow by 7%-10% and 3%-5%, respectively.
So far this year the shares are down 12% YTD and currently hover at $56. They trade around 29.67 times consensus forward earnings and 23.31 times current sales. Buy-and-hold investors should keep the stock on their radar and invest around $55 or even below to increase the margin of safety.
Invesco MSCI Sustainable Future ETF (ERTH)
52-week Range: $54.63– $83.84
Dividend Yield: 0.51%
Expense Ratio: 0.58% per year
Our next choice is an exchange-traded fund, the Invesco MSCI Sustainable Future ETF. It provides access to firms taking steps to create a more environmentally sustainable global economy.
ERTH, which has 142 holdings, tracks the MSCI Global Environment Select Index. The ETF was launched in October 2006. Close to 36% of businesses come from the U.S. Others are based in China, Japan, Denmark, France and several other countries.
The leading 10 names make up close to 40% of net assets of $411 million. In terms of sectoral allocation, we see industrials topping the list (32.45%) followed by consumer discretionary (18.28%), real estate (16.91%), and information technology (13.75%) among others.
Leading stocks include electric vehicle (EV) manufacturers Tesla (NASDAQ:TSLA) and Nio (NYSE:NIO), Denmark-based wind turbine company Vestas Wind Systems (OTCMKTS:VWDRY), data center real estate investment trust (REIT) Digital Realty Trust (NYSE:DLR), and Enphase Energy.
The ETF returned 12.2% in the past year but is down about 13.5% so far in 2021. ERTH saw a record high in January. However, since then, it has lost 20% of its value. Forward P/E and price-to-book (P/B) ratios are 25.53 and 2.61. Interested readers could consider investing around these levels.
Energy Stocks to Buy: iShares Global Clean Energy ETF (ICLN)
52-Week Range: $16.05 – $34.25
Dividend Yield: 0.74%
Expense Ratio: 0.46% per year
Finally, we look at another ETF, the iShares Global Clean Energy ETF. It provides exposure to global businesses in the clean energy sector. ICLN started trading in June 2008 and tracks the S&P Global Clean Energy Index.
The top ten holdings account for almost half of net assets of $6.1 billion. Around 37% of the companies are U.S.-based, followed by Denmark, China, Canada and Spain.
In terms of sub-sectors, we see electric utilities (38.46%), renewable electricity (14.88%), heavy electrical equipment (14.18%), and semiconductor equipment (14%).
Although ICLN is down 21% YTD, it has returned over 32% in the past 12 months. The fund’s trailing P/E and P/B ratios stand at 25.62 and 2.92, respectively.
Given the increased priority of climate change, clean energy investments would likely continue to dominate financial headlines. Bullish investors might want to consider waiting for a pullback toward $22 to invest in the fund.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.