A signature achievement of the Inflation Reduction Act of 2022 was the billions of dollars in tax credits to promote clean energy projects. About $40 billion of those tax credits have been tapped to date. That should be bullish for clean energy stocks. But this is a time when the law of unintended consequences comes into play. Many of the companies that are competing for those clean energy dollars are in the growth phase. That means many are not profitable; some are even in the pre-revenue stage. They rely on debt offerings to fund their growth. That makes them sensitive to interest rates. And a federal funds rate of over 5% is having a significant impact on clean energy companies and, by extension, clean energy stocks.
However, there are some opportunities. To find these, investors should look to companies that are generating predictable revenue and are already profitable. Here are three clean energy stocks to consider. Two common threads that are woven through these three stocks are that they are all trading near 52-week lows, and they’re all getting Moderate Buy ratings from analysts.
NextEra Energy (NEE)
The first two picks of clean energy stocks are no pure plays on clean energy. In fact, they derive a significant amount of business from traditional fossil fuels. However, this is a time when playing both sides of the energy puzzle may be the way to go. That brings me to NextEra Energy (NYSE:NEE). The company has plans to completely eliminate carbon emissions from its operations by 2045. It’s also the world’s leading generator of wind and solar power.
NEE stock is down over 36% in 2023 despite continuing to post year-over-year increases in revenue and earnings. As my InvestorPlace colleague, Alex Sirois, explains, this is because the company is fundamentally a utility stock. And bond yields of over 5% are a more attractive alternative to the company’s dividend, which yields 3.55% as of this writing.
However, while analysts may be lowering their price targets, they’re still overwhelmingly bullish on NEE stock. This will require patience, but if you’re looking for a risk-free dividend payer now with some growth down the road, this is a clean energy stock to watch.
American Electric Power (AEP)
American Electric Power (NYSE:AEP) is probably not the first name you think about when it comes to clean energy stocks. The utility giant has a footprint spanning many states and 5.6 million customers. But the company also has an extensive renewable energy portfolio that includes wind, solar and hydroelectric power. And it plans to add 17 gigawatts of new energy opportunities in the next 10 years.
Like NextEra Energy, AEP stock is down in 2023 by around 22%. One thing that may be helping AEP stock is a dividend yield that is at 4.4%. If you’re a long-time shareholder, that may be enough yield to keep you from shifting to the bond market.
Analysts are not as bullish on AEP stock as they are on NextEra. However, the majority of analysts are still in the Buy camp. And the stock has a price target that suggests growth of over 26%. Pair that kind of gain with a dividend, and you’ll be comfortably ahead of inflation.
Enphase Energy (ENPH)
Enphase Energy (NYSE:ENPH) has been one of the darlings among clean energy stocks for several years. The company has a portfolio of products that support solar energy and energy storage. Its signature product is its microinverter, which allows solar panels to efficiently convert AC power to DC power. And in 2023, the company introduced its bidirectional EV charging solution.
However, concerns over the company’s slowing rate of growth and reliance on the North American market are two reasons the stock is down nearly 50% in the last 12 months. The company is indirectly affected by higher interest rates in as much as they affect residential and commercial solar panel installations.
That’s been bad news for investors who were late to ENPH stock. On the other hand, taking a wider view, the stock is up over 2,500% in the last five years. The long-term outlook for the solar industry is still bright, making Enphase one of the clean energy stocks for investors to consider.
On the date of publication, Chris Markoch 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.
