On the heels of an apparent Democratic sweep in the Georgia run-offs that paves the path for a “Blue Wave” — wherein Democrats control the White House, the Senate, and the House of Representatives — solar stocks are surging. As of this writing, the Invesco Solar Portfolio ETF (NYSEARCA:TAN) is up more than 10% on the day.
This is not a head-fake. It’s the start of a multi-year breakout in solar stocks.
Solar energy adoption was already on a huge upswing before the 2020 Election. Falling costs, improving technology and shifting consumer demand all compelled homeowners and businesses alike to more seriously consider installing solar panels. Now, significant political catalysts are in the pipeline, too, as a Democratic controlled government will almost certainly make it a priority to pass major clean energy bill in 2021. Huge solar subsidies will likely be the focal point of that bill.
In other words, the solar market is primed for several years of hypergrowth ahead.
Amid this hypergrowth era, solar stocks will keep surging — no pun intended.
With that in mind, let’s take a look at my three favorite solar stocks to buy for the blue wave catalyst.
Solar Stocks to Buy: SolarEdge (SEDG)
One of my favorite solar stocks to buy for the next several years is SolarEdge, because this big solar company has clear visibility to turn into the ubiquitous technology backbone for the solar industry in the 2020s.
Here’s the story.
Solar systems have three main parts: the modules (which produce DC power when exposed to sunlight), the inverter (which turns DC power into AC power that can be used by the electricity grid), and associated cabling, fuse boxes and mounting hardware.
Traditional solar systems were built with central inverters, or one inverter that connected all the modules in a solar system. These systems suffer from a “weakest link” problem where – because all the modules in the system are connected by the same inverter – the whole system tends to operate at the power output of the weakest module in the system.
A breakthrough technology called power optimizers were made to fix this “weakest link” problem. Power optimizers are basically intelligent electronic chips placed on each module. They monitor, track, and adjust (where necessary) the power output of each individual module. In so doing, power optimizers separate the system from the module, and keep each module running at its unique MPP, or maximum power output.
Power optimizers are the future technology backbone of solar. Almost every solar panel at scale will be outfitted with solar optimizers to improve performance.
SolarEdge sells these power optimizers, they have no rival in this space, and their dominance is only growing. According to IHS Market, SolarEdge is the top solar inverter/optimizer supplier in the world, based on revenues and wattage. Meanwhile, according to Wood Mackenzie, SolarEdge has grown its share of the U.S. Residential Solar Inverter Market from near-zero in 2013, to over 60% in 2019 – going from the fifth-largest player in the space, to the single largest player by a mile.
SolarEdge should be able to couple it’s first-mover’s advantage with market-leading resources – the company has over $1 billion in cash on the balance sheet, about 400 full-time employees, and a $10+ billion market-cap – to sustain inverter/optimizer leadership for the foreseeable future.
If so, then SolarEdge will also sustain enormous revenue and profit growth over the next few years as solar goes mainstream, and SEDG stock will be one of this industry’s biggest winners.
Another one of my favorite solar stocks to buy for the 2020s is SunPower.
At a high level, SunPower is a $4 billion downstream, integrated solar energy distribution and storage leader in the U.S. and Canada that provides an end-to-end, consumer-facing solution which includes solar project origination, financing, installation and service/maintenance through a connected software app.
In other words, the company doesn’t make solar panels and invest in upstream R&D. Rather, the company just sells, finances, and installs solar panels and accompanying panel management software into residential and commercial end-markets.
The bull thesis on SPWR stock all boils down to one thing: SunPower is the unrivaled leader in the premium solar panel market.
SunPower’s solar panels are widely recognized as the most efficient panels in the market, with an average efficiency of 19% to 23%. That is markedly higher than the industry-average efficiency range of 14% to 18%. These panels also have market-leading temperature resistance, and a market-best 25-year materials warranty.
Sure, the panels are a bit pricier than the norm. But not by much (about 15% more expensive), and customers say that this premium is both worth it for the higher-quality panels as well as offset by the fact that SunPower offers a wide array of in-house financing solutions. That’s why SunPower has one of the market’s best Net Promoter Scores at 69.
In other words, SunPower is today and projects to remain the domestic solar industry’s dominant premium brand.
That’s an attractive position to hold, because most businesses will likely pivot to premium solar panels (they can’t afford power outages), meaning that SunPower could win a bunch of corporate contracts over the next few years as rising solar subsidies push businesses to adopt solar.
As all that happens, SPWR stock should surge higher.
Solar Stocks: Maxeon Solar (MAXN)
Last on this list of top solar stocks to buy — but certainly not least — is Maxeon Solar, a small solar tech company that makes the super high-quality solar panels that SunPower installs.
Maxeon is a brand-new player in the solar world. The company used to be a part of SunPower. Then, in late 2019, SunPower decided to break apart its upstream manufacturing business (Maxeon) from its downstream installation business (SunPower), so that as the solar industry grows, matures, and consolidates over the next few years, SunPower and Maxeon can each craft out a niche for themselves through value chain specialization.
So, today, Maxeon is a new market entrant that specializes on manufacturing the world’s best solar panels, which feature the market’s highest energy conversion efficiency, the market’s lowest degradation rate, and the market’s best durability and longest shelf life.
From head to toe, the solar panels that Maxeon makes are the best solar panels the world has to offer.
Maxeon has an exclusive agreement to sell these solar panels to SunPower in the U.S. and Canada over the next few years. But that exclusivity agreement ends with those two countries, meaning outside of North America, Maxeon has a huge “white space” opportunity to turn into the world’s go-to premium solar panel manufacturer, selling its best-in-breed solar panels to multiple installers across multiple continents.
That’s why I see Maxeon as one of the best “picks-and-shovels” plays on the global solar energy megatrend.
Thus, as that solar energy megatrend gains significant momentum in the early 2020s, MAXN stock should power significantly higher.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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