The fastest way to find a collection of renewable energy stocks to choose from is to use the holdings from one of the larger renewable energy-focused exchange-traded funds (ETFs). I have chosen the First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN), which tracks the performance of the Nasdaq Clean Edge Green Energy Index.
The fund is rebalanced four times a year and reconstituted in March and September of each year. It currently has 65 holdings varying from 9.34% for the top holding to 0.03% for the last holding. It invests in four sub-sectors: Advanced Materials, Energy Intelligence, Energy Storage & Conversion, and Renewable Electricity & Renewable Fuels.
I selected one of my three renewable energy stocks from QCLN’s top 10 holdings. The other two have weights under 1%, but I like them just the same.
Here are my top three undervalued renewable energy stocks to buy now:
|BEPC||Brookfield Renewable Corporation||$38.08|
|NEP||NextEra Energy Partners, LP||$73.11|
Renewable Energy Stocks: Brookfield Renewable Corporation (BEPC)
The actual holding held by QCLN is Brookfield Renewable Partners LP (NYSE:BEP). However, Brookfield Renewable Corporation (NYSE:BEPC) was created so that investors could invest in its renewable power assets through a corporation rather than a limited partnership, so there is no K-1 tax form to worry about each year.
The company’s June 2022 annual shareholder’s meeting highlighted that BEPC generated $934 million in funds from operations (FFO) in 2021, 10% higher than a year earlier. In the past fiscal year, it brought approximately 1,000 megawatts (MW) of power online in 2021, with 15,000 MW in some stage of development. In the five years between 2021 and 2026, it expects to grow FFO by 10% or more annually. It finished 2021 with more than $68 billion in power assets, 81% in North and South America.
BEPC currently trades at 1.79x sales, its lowest valuation since Brookfield Renewable Partners LP shareholders received a special distribution in July 2020 of one BEPC share for four units held in the LP.
For those who want a more diversified portfolio, you can own BEPC indirectly through Brookfield Asset Management (NYSE:BAM), which owns 26% of the company. BAM stock is down 25% year-to-date (YTD). You won’t go wrong owning BAM over the long haul.
NextEra Energy Partners LP (NEP)
NextEra Energy Partners LP (NYSE:NEP) is a growth-oriented limited partnership created by its parent company, NextEra Energy (NYSE:NEE), in June 2014. It owns wind and solar projects, natural gas, and infrastructure assets in the U.S.
NEP went public in June 2014, selling 16.25 million units at $25. After the initial public offering (IPO), NEE owned 82.6% of the pure-play renewable energy company. Today, it controls approximately 55% of the voting power.
In mid-June, NEP held its 2022 Investor Conference. Its presentation highlighted that it had exceeded its goals set at its 2019 Investor Conference.
For example, it sought to grow LP distributions by 12% to 15% per year between 2019 and 2024. So far, it has increased distributions by approximately 15% per year. In addition, over the past three years, it has acquired 3 gigawatts (GW) of renewables and storage assets.
When it went public in 2014, it had approximately 1 GW of renewable energy. Today, it has 8.3 GW with 4.3 billion cubic feet of natural gas. As a result, its annualized distributions since its IPO have increased by 290%, from 75 cents to $2.93 at the end of 2021.
Down 11% YTD, I wouldn’t say that NEP is a screaming buy, but it is not overpriced either. Its current price-to-book ratio is 2.05. That’s lower than it has been since 2019.
Renewable Energy Stocks: Ameresco (AMRC)
Ameresco (NYSE:AMRC) owns renewable assets and helps others implement clean energy solutions for their businesses. Founded in 2000, it became a public company in 2010.
In 22 short years, Ameresco has completed more than $11 billion in energy solution projects for more than 8,000 customers worldwide. In addition, it owns 353 million watts of energy projects for solar, landfill gas, renewable natural gas, and battery storage.
Between Ameresco’s renewable assets and those of its customers, it has managed to avoid 75 million metric tons of carbon dioxide being emitted into the atmosphere since 2010. That’s 187 billion miles (75 million divided by 13.6 million multiplied by 34 billion) driven by an average passenger vehicle.
As a result, Ameresco has been able to increase its revenues since 2017 by more than 21% annually, from $717 million in 2017 to an estimated $1.87 billion in 2022. Over the same period, it has grown its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by 27.1% annually.
With Ameresco stock down almost 46% YTD, it’s trading at the same levels it did in December 2020, 18 months ago. Under $40 would be a perfect entry point.
On the date of publication, Will Ashworth 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.