When discussing top green energy stocks, there is one clear leader: NextEra Energy (NYSE:NEE). The company operates under two distinct businesses, including an electric utility, FPL, and the world’s largest wind and solar business, NEER. NextEra Energy’s $156 billion market capitalization makes it more than three times as large as the next biggest renewable energy firm, LONGi Green Energy Technology. That large gap suggests there’s unlikely to be a new green energy leader soon, at least based on market cap.
That said, there are several up-and-coming renewable energy firms of note. These firms have realistic chances of establishing long-term advantages over their respective markets. If successful, that positioning will lead to continued strong growth and resultant price increases for investors.
First Solar (FSLR)
According to Morgan Stanley analyst Andrew Percoco, First Solar (NASDAQ:FSLR) stock has risen too fast in 2023. Therefore, he recently downgraded the shares, recommending investors sell them to capitalize on their rapid 2023 price appreciation. It seems the markets reacted to his advice, at least partially, as prices fell between April 3 – April 7.
His argument fairly points out that First Solar has benefited from the tax treatments the Inflation Reduction Act (IRA) provides to solar companies. And, yes, First Solar is very likely overvalued based on metrics like price-to-book value and price-to-sales. However, First Solar is the largest U.S.-based solar panel manufacturer behind 3 Asia-based firms. The government subsidies of the IRA are already priced into FSLR stock. But at the same time, the U.S. government is incentivized to ensure that those same firms continue to thrive moving forward.
First Solar is expected to increase its capacity by 6.0 gigawatts – enough to power 4.5 million homes – by 2024. Investors will buy into the overarching narrative even as it remains overpriced.
Array technologies (ARRY)
Array Technologies (NASDAQ:ARRY) is another solar stock. Unlike First Solar, it doesn’t provide solar panels. Instead, ground mounting systems that angle panels toward the sun.
The reason to believe that Array Technologies could find itself among the next green energy leaders is phenomenal growth.
The firm’s revenue grew by 82% in Q4 and by 92% in 2022 overall. Those impressive numbers weren’t entirely organic and included the effect of the $370 million in additional revenue due to the STI Norland acquisition. The company also became net income positive in 2022, including the aforementioned acquisition.
Over the last three years, Array Technology’s revenue per share has grown at an average of 26.5% annually. That’s better than 82% of its industry competitors. Array’s primary competitors, Shoals Technologies (NASDAQ:SHLS) and SunRun (NASDAQ:RUN), are slightly bigger but also operate more diversified businesses. Therefore, Array is the best choice as the largest pure-play solar mounting systems stock and company.
Vestas Wind Systems (VWDRY)
Vestas Wind Systems (OTCMKTS:VWDRY) is pivoting out of a difficult 2022 and into 2023, poised for growth. The company is the largest maker of wind turbines and supplies an industry expected to grow by 15% overall this year. That growth is expected to push overall global wind energy capacity above one terawatt. One terawatt is enough energy to cool 500,000 homes for a year, light 1 million homes, or fully power 70,000.
Inflation Reduction Act subsidies favor U.S. wind energy firms, of which Vestas Energy Systems is not one. However, European nations have enacted similar policies to subsidize their domestic firms. Those do favor Vestas, a Danish firm. Investors are more concerned with fundamentals than subsidies. Vestas hopes 2023 is kinder than 2022.
Vestas, despite its size advantage, are arguably risky. In 2022, its revenues declined, although its business book increased by 3% on high prices. Investing is really a bet that projected industry growth in 2023 flows through the sector’s largest players affecting them more positively than others.
On the date of publication, Alex Sirois 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.
