Clearly expanding dramatically and rapidly around the globe, wind power has become a key tool in the fight against climate change. And — since wind power has ” the most decarbonisation potential per” megawatt, while offshore wind energy has begun to quickly proliferate,– wind energy, in all likelihood, will continue to spread speedily for the foreseeable future. As a result, investors should seek exposure to wind-energy stocks.
Indeed, despite the coronavirus pandemic, in 2020 a record 93 gigawatts of new wind-energy capacity were installed in 2020. Moreover, as of November 2021, a very impressive 743 gigawatts of wind-energy power had been installed globally, according to the Global World Energy Council (GWEC). By 2050, wind power will provide 35% of the world’s total power, the International Energy Agency (IEA) has predicted..
Also important to remember is that, due to the electrification of transportation, heating, and air conditioning, overall global electricity demand is poised to soar in the coming years and decades.
Put all of these points together, and it’s clear that wind energy stocks should do extraordinarily well over the long term.
Although most wind energy stocks struggled last year due to supply chain issues, higher component costs, and uncertainty about U.S. tax policies, all of those issues should become much less problematic in 2022.
Three wind energy stocks that are poised to generate very high profits for investors in 2022 and over the long-term are:
Wind Energy Stocks: Orsted (DNNGY)
The Denmark-based company is the leader in the new, rapidly growing offshore wind market. According to Global Wind Energy Council (GWEC), in 2020, despite the pandemic, 6.1 gigawatts of offshore wind power were added around the world, amounting to the second- highest total annually. The annual record was reached in 2019, leading me to believe that, as the pandemic and supply chain issues ease in 2022, another record will be set.
More impressively, GWEC stated that, “Offshore wind has the biggest growth potential of any renewable energy technology.” Since countries have limited amounts of land available and real estate in some areas can be expensive, offshore wind does seem to have a great deal of room to grow.
In September 2021, Seeking Alpha author WideAlpha proclaimed that, “Orsted is the undisputed world leader in offshore wind energy.” In 2020, Orsted generated 10.6 billion Danish krones of EBITDA (one Danish krone is now worth 15 cents) from its offshore wind projects, out of its total EBITDA of 13.1 billion Danish krones. For 2021, the company, as of November 2021, expected its EBITDa from offshore wind to come in at 12.8 billion Danish krones , out of total EBITDA of 16 billion Danish krones.
Orsted isn’t resting on its laurels; as of November, it was building “two of the largest offshore wind farms in the world…which are both on track to be commissioned in 2022.” The company is starting to unlock the potentially huge offshore U.S. wind market; in August 2021, the U.S. government began an environmental review of the company’s Sunrise Wind project in New York. Sunrise and two other large offshore wind projects in the U.S. are slated ” to be fully commissioned by 2025.” Orsted reported in November.
In the first nine months of 2021, Orsted’s “Earnings from wind and solar assets in operation” came in at 10.3 billion Danish krones, down from 13 billion Danish krones during the same period a year earlier. The company blamed lower than expected “wind speeds” for the decline.
But its biomass and gas businesses made up the slack, as its overall operating profit increased for the first three quarters of last year rose 2.9 billion Danish krones year-over-year to 16 billion Danish krones.
According to Yahoo Finance, Orsted’s forward price-earnings ratio is an affordable 20.8.
Vestas Wind Systems (VWDRY)
For exposure to onshore wind, another Danish company, Vestas Wind Systems is the best bet. In November, sustainFi reported that, “Vestas.. is the leading onshore wind turbine manufacturer.” The website explained that, “Vestas has installed 18% of the world’s wind turbines, more than any other company. It is also a leader in North America, where it has 40 GW in installed capacity. ”
In the third quarter, Vestas’ top line jumped 16% to $5.5 billion EUR, while its EBIT, excluding “special items,” slid 97 million EUR YOY, coming in at 325 million EUR. Vestas blamed the decline on supply chain issues.
Encouragingly, supply chain issues are widely expected to ease this year. And, in the current market environment, in which profitability is so important, Vestas’ high Q3 EBIT and its fiscal 2020 cash flow from operating activities of 743 million EUR, show that its overall profitability is strong. What’s more, the wind turbine maker’s outlook is quite certain, as its backlog at the end of Q3 was a very impressive 47.3 billion euros. That was 13.4 billion euros above its backlog at the end of the same period a year earlier.
In Q3, Vestas received its largest order ever, a 3.7 gigawatt deal for America’s on shore Empire Wind undertaking.
Vestas’ forward price-earnings ratio of 39.7 is a bit high. Still, I think that analysts are likely being conservative about the resolution of supply chain issues this year, and I expect the company’s profitability growth to accelerate over the longer term, given its huge backlog and the high likelihood of demand for wind energy exploding in the longer term.
Wind Energy Stocks: General Electric (GE)
GE’s wind energy business has been doing extremely well. And importantly, in early 2024, the conglomerate plans to spin off its renewable and power businesses into a single company. Not only will the spun off company give investors tremendous exposure to wind energy, but the entire new company, in my view, will benefit tremendously from a huge surge in global demand for electricity.
Showing the strength of GE’s wind-energy business, the company’s Renewables unit recently agreed to supply 37 turbines to India’s Rajkot Wind Farm project. Last year, the conglomerate received over 1.2 gigawatts of wind turbine orders from Indian entities.
GE is also poised to soon be very active in the offshore wind market, as its offshore wind turbine prototype can now reportedly generate up to 14 megawatts of electricity, setting a record.
The renewables unit has already made deals to supply offshore turbines to major projects in the U.K. and Massachusetts.
As for the overall outlook of GE stock, research firm Bernstein recently initiated coverage of the shares with an “outperform” rating. The firm is upbeat on the company’s upcoming spinoffs and expects the company’s 2023 earnings-per-share (EPS) to come in at $5.74. That means that the shares are changing hands for just 18 times the firm’s 2023 EPS estimate, making them quite affordable.
On the date of publication, Larry Ramer held a long position in GE.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, Ford, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.