Renewable energy stocks haven’t had a great 12 months. In a broad example, the Invesco Solar Portfolio ETF (NYSEARCA:TAN) has lost nearly half of its value over the past year.
Two major factors have contributed to the decline in value for many renewable energy stocks. For one, the wind and solar industries haven’t received the sorts of subsidies that traders were hoping for from the Biden Administration.
For another, many green energy companies don’t generate much in the way of near-term profits or cash flows. Thus, they’ve gotten caught up in the broad market-based selling around all sorts of speculative growth companies.
It’s certainly not all blue skies ahead for the renewable energy industry. Shortcomings — particularly as it relates to lack of storage capacity — have become painfully apparent in recent months.
Look at the spiraling electricity crisis this winter in Europe for one example. Still, after seeing many renewable energy stocks drop by 50% or more, it’s time to take a fresh look.
Here are seven names that could stand out, even during this volatile period for the renewable energy industry:
- Sunrun (NASDAQ:RUN)
- First Solar (NASDAQ:FSLR)
- NextEra (NYSE:NEE)
- Consolidated Edison (NYSE:ED)
- Ormat Technologies (NYSE:ORA)
- Atlantica Sustainable Infrastructure (NASDAQ:AY)
- General Electric (NYSE:GE)
Renewable Energy Stocks to Buy: Sunrun (RUN)
Solar energy stocks were blazing hot at the beginning of the Biden Administration. Between the November 2020 election and Inauguration Day 2021, the price of Sunrun stock soared almost 52%.
Particularly with Democrats in control of the House of Representatives and Senate, in addition to the presidency, a robust era of clean energy spending was supposed to commence.
However, there’s been limited legislative traction for green energy. Much of Washington D.C.’s attention has understandably turned to more immediate issues such as dealing with the societal and economic impacts of the Covid-19 crisis.
Attempts at a grand series of Build Back Better infrastructure bills have gotten pruned down to a much-smaller package.
This has hit the solar industry hard with smaller, more-speculative names like SunRun getting walloped. RUN stock is down nearly 70% over the past year.
Sunrun operates in the home solar space and has shown incredible growth — north of 30% — despite already having a large installed base.
However, Sunrun has gotten hit on all fronts. The lack of expected subsidy support has dimmed near-term expectations. Meanwhile, supply chain and inflation issues are a threat to crush profit margins.
In addition, the company borrowed heavily during brighter times and now faces growing investor skepticism around its balance sheet.
There’s plenty of risk at SunRun to be sure. However, with the stock down from a 52-week high of $85 to just $25 now, RUN stock is one of the highest-voltage ways to get exposure to a potential solar industry rebound.
First Solar (FSLR)
First Solar is a more conservative way to play the solar industry. It is one of the leading manufacturers of panels.
It’s not nearly as much of a growth play as something like Sunrun. However, it’s actually highly profitable, which is something of a rarity in the solar industry at the moment.
The company will have earned roughly $3.50 per share for full-year 2021 once it announces results later this month. That will put the stock around 20x full-year 2021 earnings.
Analysts see First Solar’s earnings dropping in 2022. After that, however, the consensus has 2023 earnings recovering to 2021 levels, giving First Solar a solid base of profitability in the intermediate term.
Some of First Solar’s strategic advantage is due to using a differentiated technology for making its panels as opposed to commodity producers overseas.
Another element of its success came from the Trump Administration’s move to slap tariffs on imported solar panels. Biden’s team recently announced that it will ease but not altogether eliminate these tariffs.
That’s an additional win for First Solar, which has invested heavily in its Ohio-based manufacturing facilities.
Renewable Energy Stocks to Buy: NextEra Energy (NEE)
Another way to get involved in the renewable energy wave is through power utilities. Not all utilities have a strong renewable energy angle. A few stand out, however. Florida-based NextEra is one of the leaders in solar power deployment nationally.
It does have a traditional regulated utility business that offers stable predictable cash flows.
Where things get more exciting is with its separate arm in the construction and design of large-scale renewable power projects around the country. This gives NextEra an attractive source of additional income.
These development projects tend to be in a competitive market and thus can earn higher returns on equity than traditional utility power where returns are generally set by state regulators.
Additionally, NextEra has benefited in a huge way from passive index fund flows. NextEra scores highly on environmental, social and governance (ESG) standards and thus is a leading investment for many funds in the socially-conscious, green, and millennial categories.
As more and more money floods into these ESG-type investments, NextEra should be one of the largest recipients of these inflows.
Consolidated Edison (ED)
Consolidated Edison is another of the pioneers in the renewable utility space. The New York City power company is one of the world’s oldest power utilities.
Even with its storied history, it has managed to keep up with the times. Indeed, today, it’s now the second-largest operator of utility-scale solar power in the U.S.
That’s good in its own right. Given the political climate on the East Coast, the renewable focus is particularly useful. ConEd is already ahead of the curve in terms of upping its investments in green energy while other utilities will have to rush to meet phase-outs around the use of dirtier fuels.\
From an investor’s perspective, ConEd is a classic growth and income holding. The company has increased its dividend for 48 years in a row, making it one of the few Dividend Aristocrats in the power utility sector. ED stock has delivered steadily rising dividends and some capital appreciation for decades, and its quick adoption of renewables should keep that streak going for many years to come.
Renewable Energy Stocks to Buy: Ormat Technologies (ORA)
Ormat Technologies is the global leader in geothermal power generation. The company was founded way back in 1965 and has developed more than 190 power plants over the decades. It has been in the green energy game for a long time, giving it a level of domain expertise and cyclical knowledge that most newer rivals don’t yet possess.
For a long time, analysts viewed geothermal as a fringe alternative in the power generation business. However, it has really had its moment to shine over the past few years. That’s due to geothermal’s much higher reliability. Geothermal is almost always available, making it a baseload generator that doesn’t experience the sorts of drastic fluctuations in supply that you see with wind or solar.
Sure, geothermal has drawbacks. It is often in remote locations, costs can be somewhat unattractive at times, and it’s harder to build at vast scale compared to other alternatives. However, in a world that is rapidly discovering some drawbacks with intermittent green power sources, geothermal has carved out a solid space for itself.
Ormat in particular is profitable and has an attractive business outlook. ORA stock was fairly quiet between the mid-2000s and 2015. However, since then, shares as much as quintupled before hitting their peak in 2021. Since then, like so many growth stocks, Ormat’s shares have sharply from their peak. However, the long-term trajectory should keep pointing upward.
Atlantica Sustainable Infrastructure (AY)
One of the more interesting trends in natural resources of the past decade has been royalty companies. Specialty finance firms will provide financing to an oil & gas or mining company, and, in return, get a stream of mineral production once the project comes online.
Atlantica is offering investors a similar sort of structure in the renewable energy space. It finances renewable energy projects that are set to be built. After the renewable power generation asset is up and running, Atlantica offloads energy to end purchasers and gets to keep a favorable spread. This gives investors a royalty structure that should deliver steadier returns and a solid dividend from what has historically been a volatile industry.
Atlantica does have some other assets as well, namely investments in water, transmission lines, and natural gas. However, roughly 75% of its assets are in renewables such as wind and geothermal. AY stock currently offers a 5.5% dividend yield, making it an interest choice for green energy investors that also want some immediate income.
Renewable Energy Stocks to Buy: General Electric (GE)
Finally, for investors that want a broader industrial play with emphasis on green energy exposure, don’t forget about GE.
General Electric has been on a multi-year journey to turn its business around and rectify the errors of past management teams. This transformation continues at aggressive speed under star CEO Larry Culp. GE is unloading its large aircraft leasing business and has several more asset divestures and spins on the way.
It’s a complicated company, and the name GE leaves many investors with a bad taste. However, operating results are picking up steam and analysts see it as quite cheap. Morningstar’s Joshua Aguilar currently pegs fair value at $133 versus a current share price around $100. That’s an attractive discount, and GE stock gives investors exposure to solid power assets such as its wind turbines and power grid systems solutions.
On the date of publication, Ian Bezek held a long position in ED stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a sizable New York City-based hedge fund. You can reach him on Twitter at @irbezek.