With increasing concerns on the long-term impact of global warming, policymakers globally have taken an aggressive stance on promoting renewable energy. Renewable energy consumption has grown at an annual average of 13.7% in the last decade, which makes renewable energy stocks more appealing.
April 2019 was the first time ever that renewable energy outpaced coal, providing 23% of U.S. power generation, according to a Deloitte anaylsis.
The shift towards renewable energy is global. The share of renewables in global electricity increased to 28% for the first quarter of 2020.
I believe that this is just the beginning in terms of growth in the renewables sector. To put things into perspective, renewables growth must increase fourfold by 2030 to meet climate targets, according to the International Renewable Energy Agency. This presents a big opportunity for renewable energy stocks. Not just for the near term, but for the coming decade.
Investors should therefore consider some renewable energy stocks for the portfolio. Let’s look at the following stocks that are making the world greener.
- NextEra Energy (NYSE:NEE)
- First Solar (NASDAQ:FSLR)
- SolarEdge Technologies (NASDAQ:SEDG)
- Canadian Solar (NASDAQ:CSIQ)
Renewable Energy Stocks: NextEra Energy (NEE)
NEE stock is my first choice among renewable energy stocks. NextEra Energy has a long track record of earnings growth, which is likely to accelerate in the coming years.
The reason is as follows – the company expects capital deployment of $50 to $55 billion from 2019 to 2022. These investments are likely to translate into higher revenue and cash flows.
I don’t see financing as a concern with the company currently having a liquidity position of $13 billion. In addition, the company is likely to generate an annualized cash flow of $7 to $8 billion.
Further, from a growth perspective, the company added 1,730 megawatts to its backlog in the second quarter of this year. If strong order inflow sustains, there is clear revenue and cash flow visibility.
Besides the potential growth in the coming years, NEE stock is also attractive considering the dividend payout of $5.6 per share. With the growth plans, it’s likely that dividends will continue to increase.
First Solar (FSLR)
First Solar is another attractive name in the renewable energy industry. Since inception, the company has already shipped 25GW of solar modules globally.
Bank of America analyst Julien Dumoulin-Smith provides a critical reason to be bullish on FSLR stock that the company is “among the only large-scale manufacturers of solar panels and benefits from this positioning in discussions with accelerating U.S. sales of solar.”
The company has a backlog of 11.9GW in terms of module shipments. With this, bookings are effectively sold out through the year and the company has 2GW to sell-out its remaining 2021 supply.
Demand for solar panels is robust. This gives the company a clear revenue and cash flow visibility. FSLR stock has moved higher by 46% in the last six months. I believe that this upside momentum is likely to sustain with a healthy earnings growth outlook for the coming years.
SolarEdge Technologies (SEDG)
SEDG stock has been an outperformer, having surged by 143% in the last one year. While some profit booking is likely after the big rally, SEDG stock is worth keeping in the radar.
SolarEdge Technologies revenue has increased at a CAGR of 35.4% in the last five years. With operations in more than 30 markets globally, the company has ample headroom for growth.
As of 2019, the company commanded a leading position in the PV inverter supply market. With residential, commercial and utility solutions, there are multiple segments triggering growth.
The company’s credit health is also robust with $592.7 million in cash and equivalents as of June 2020. Further, the company is almost debt-free and this gives financial flexibility for pursuing aggressive growth.
At the same time, the company’s operating cash flow has increased from $82.5 million in 2016 to $259 million in 2019. Potential dividends in the future can result in further upside.
Canadian Solar (CSIQ)
Canadian Solar is a manufacturer of solar modules and system solutions like inverters, energy storage solutions and EPC services. The company’s operations are diversified across Americas, Asia and Europe.
Japan is likely to invest more than $100 billion in wind and solar energy before 2030. Similarly, Europe is targeting new renewable energy target of at least 27% of final energy consumption by 2030. Canadian Solar stands to benefit from this trend.
It’s worth noting that the company delivered shipments of 8.6GW in the last year. For the current year, shipments are expected to increase to 11-12GW. Furthermore, the company has guided for shipments of 18-20GW in 2021.
Clearly, the best part of growth is still to come for Canadian Solar. As shipment growth translates into higher revenue and cash flows, I expect CSIQ stock to gain positive momentum.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector. As of this writing, he did not hold a position in any of the aforementioned securities.
