- These undervalued renewable stocks have powerful catalysts, despite many trading at low valuations.
- JinkoSolar (JKS): Jinko is poised to benefit from huge demand for solar panels
- General Electric (GE): GE stock will get a lift from the proliferation of offshore wind energy.
- Shoals (SHLS): Its Q1 results showed that the demand for its products and the company’s profitability are very strong.
- Orsted (DNNGY): This company will benefit from the E.U.’s big investments in offshore wind energy.
- Plug Power (PLUG): Plug Power is effectively exploiting the massive hydrogen revolution.
- The Invesco Solar ETF (TAN): This exchange-traded fund gives relatively conservative investors the opportunity to get exposure to a wide variety of solar stocks.
- EVgo (EVGO): EVgo has the largest U.S. network of fast chargers for non-Tesla (TSLA) cars.
There are many strong, positive catalysts for renewable energy companies. Yet the stocks of these firms, in many cases, are selling for incredibly low valuations due to completely unfounded macro fears. As a result, investors can easily find plenty of radically undervalued renewable energy stocks.
The mainstream media is starting to mention a subject that I’ve discussed for years: the fact that the electrification of transportation will require the world to produce much more electricity. For example, Reuters recently noted that “Widespread EV adoption will spark a huge surge in [U.S.] power demand.”
Since solar energy is both clean and, in most places, the cheapest way to generate additional electricity, “huge” increases in power demand are going to result in huge volumes of solar modules being deployed.
Meanwhile, the European Union’s efforts to wean itself off of Russian gas is going to result in the bloc deploying very large numbers of solar modules, wind turbines and even hydrogen power plants.
Speaking of hydrogen, green hydrogen, which requires a great deal of renewable energy, is becoming all the rage in the E.U. and many other parts of the world .
So let’s look at seven of the top undervalued renewable energy stocks you should have on your list.
|TAN||Invesco Solar ETF||$67.77|
The first of these undervalued renewable energy stocks is one of the largest solar module makers in the world, JinkoSolar (NYSE:JKS). It is very well-positioned to benefit tremendously from the explosion of demand for solar panels in China, the E.U., the U.S., and many other places.
On Wall Street, there has been much hand wringing about the impact of a new investigation of solar imports from some East Asian countries aside from China. But during its last earnings conference call, JinkoSolar clarified that the increase in the demand for its solar panels from Europe and China looks well-positioned to make up for any reduction in U.S. demand spurred by the probe. And the company already has a U.S. factory whose business will boom as a result of the investigation.
Additionally, as a result of a recent initial public offering (IPO) of its main operating subsidiary in China, JinkoSolar’s debt has dropped tremendously, and the owners of JKS stock are benefiting from dividends that the company is receiving from its subsidiary.
The shares are changing hands for little more than 15 times analysts’ average 2023 earnings per share estimate for the company.
General Electric (GE)
Offshore wind energy is now becoming much more popular as the technology supporting it has greatly improved. Offshore wind is important because, of course, it can be deployed without acquiring any land. So in places where land is very scarce and/or very expensive, like many coastal U.S. states and much of Europe, offshore wind will become a key means of generating more electricity.
General Electric’s (NYSE:GE) Renewables unit makes the Haliade-X, one of the most sought-after offshore wind turbines. One huge offshore wind project using the Haliade-X is Dogger Bank off the coast of England. Based on its contract with Dogger, GE is slated to provide 277 of its offshore turbines for the project. With construction having recently started on the massive project, I expect significant revenue to soon start rolling in for GE from Dogger.
Meanwhile, GE’s Power unit should benefit from the construction of many new power plants as the demand for electricity surges, and its Aviation unit should get a big lift from consumers’ pent-up demand for travel.
The shares of Shoals (NASDAQ:SHLS), which makes equipment used in solar projects, recently soared, reaching their highest level in over a month, even though its first-quarter results came in slightly below expectations.
More specifically, the company’s revenue jumped 49% year-over-year to $68 million, but that was $2 million below analysts’ average outlook. On the bottom line, Shoals reported EPS of 5 cents, unchanged versus the same period a year earlier. Analysts, on average, were expecting the company’s EPS to come in at 7 cents.
However, it’s likely that, due to worries about the impact of the Commerce Department’s investigation, many on the Street were expecting Shoals’ results to be much worse.
Additionally, the company noted that, despite high inflation, its gross margins had jumped 5.5 percentage points versus the previous quarter to 38.7%, while its backlog and awarded orders had soared 67% YOY to $302.3 million, an all-time high.
“Demand for the new products we introduced recently continues to grow with customer orders for our battery storage and wire management offerings being particularly strong,” said Shoals CEO Jason Whitaker.
When it comes to 2022 guidance, the company lowered the top end of its net income outlook, but kept the lower end of the range intact. It now expects its full-year net income, excluding some items, to come in at $45 million to $53 million.
Clearly, the demand for Shoals’ products and the company’s profitability are very strong. As the demand for solar explodes, those trends should strengthen going forward.
Like GE, Orsted (OTCMKTS:DNNGY) is well-positioned to benefit a great deal from the rapidly increasing demand for offshore wind turbines.
Since Orsted is based in Denmark, the company is even better suited than GE to get big boosts from the E.U.’s efforts to stop importing Russian gas. As of April, according to Rystead Energy, “New offshore wind capacity additions in Europe are poised to hit a record high of 4.2 GW this year, topping 4 GW for the first time and more than doubling additions seen in 2021,” offshorewind.biz reported. In 2023, 7.3 GW of new offshore wind projects are expected to be added.
Not to be left out, the U.S. has started auctioning off large amounts of its waters off the East Coast to firms looking to build huge offshore wind projects. Orsted already owns the “the Block Island Wind Farm, America’s first offshore wind farm” and has been awarded enough waters off the East Coast to build 5 gigawatts of wind turbines.
In Q1, Orsted’s EBITDA jumped to 9.4 billion Danish krones, way up from 4.8 billion Danish krones during the same period a year earlier. This makes it a solid pick among undervalued renewable energy stocks.
Plug Power (PLUG)
On May 17, Plug Power (NASDAQ:PLUG) stock announced that it had received an order from H2 Energy Europe for a 1 GW electrolyzer. The product will be incorporated into a green hydrogen production complex in Denmark, and the deal represents “the largest capacity electrolyzer installation in the world to date,” Plug stated.
The electrolyzer will help create “up to 100,000 metric tonnes per year of green hydrogen,” the company added.
The deal indicates that Plug’s large electrolyzer business is well-positioned to boost the company’s top and bottom lines, greatly lifting PLUG stock in the process.
“We see green hydrogen as the future and have made significant investments in green hydrogen including in the construction of a gigafactory for electrolyzer production,” Andy Marsh, Plug’s CEO said in a statement.
Trading with a market capitalization of $9.5 billion, I believe PLUG stock vastly underrates the company’s truly vast opportunity in the hydrogen sector.
The Invesco Solar ETF (TAN)
The Invesco Solar ETF (NYSEARCA:TAN) gives relatively conservative investors a good chance to get exposure to a wide variety of solar stocks. TAN stock also eliminates the need for investors to worry about picking the best names — or even the best categories — within the space.
Moreover, the ETF’s largest holdings include a good mix of Western companies, such as Enphase (NASDAQ:ENPH), Solaredge (NASDAQ:SEDG), Sunrun (NASDAQ:RUN), and First Solar (NASDAQ:FSLR) along with China-based firms, including Xinyi Solar Holdings and Daqo New Energy (NYSE:DQ).
Given the huge growth of solar energy, the ETF’s price-earnings ratio of 37 is quite attractive.
In an April 7 column, Seeking Alpha’s Stock Waves wrote that “Conditions are ripe for a sizable rally in solar stocks.” That rally may be just beginning to materialize, and TAN stock gives cautious investors a good, relatively safe way to benefit from the rally.
I feel comfortable including EVgo (NASDAQ:EVGO) on this list of undervalued renewable energy stocks because the company appears to be the only American, pure-play EV charger maker that gets 100% of its electricity from renewable energy.
As I pointed out in a recent column, EVgo also has the largest U.S. network of fast chargers of any independent company in the U.S. i.e. any firm that’s not named Tesla (NASDAQ:TSLA). In fact, EVgo says that “More than 130 million people in the US live within a 10 mile drive of an EVgo fast charger.” As EV sales boom, the ubiquity of the company’s chargers should make them convenient and accessible for tens of millions of Americans.
And as I’ve noted previously, EVgo’s partnerships with multiple top automakers and a number of large retailers leave it well-positioned to gain market share and mind share in the consumer market.
I continue to think that the $2.4 billion market capitalization of EVGO stock is a bargain, given the company’s gargantuan opportunity.
On the date of publication, Larry Ramer owned shares of JKS stock, PLUG stock, SHLS stock, SHLS stock, and GE stock.