Renewable energy stocks are delivering for investors again in 2020. Following a stellar showing, the S&P Global Clean Energy Index is higher by almost 43% year-to-date.
The rise of renewables is coming at the expense of traditional fossil fuels. Price action confirms as much as the S&P Energy Select Sector Index is lower by about 40% this year. There are stark realities applying to traditional and renewable energy stocks. In the U.S., a slew of state governments are increasing adoption of green energy sources.
Likewise, as prices decline, more corporations and consumers are embracing solar and wind power. Adding to the pressure on fossil fuels producers and bolstering the case for alternative energy equities is that an array of institutional investors, including college endowments, are saying “no” to coal, gas, and oil exposure.
Adding to the near-term case for renewable energy stocks is former Vice President Joe Biden’s poll numbers against President Trump. Put simply, there are positive correlations between clean energy equities and the Democratic nominees poll status.
So the time could be right to consider these green energy stocks.
- Tesla (NASDAQ:TSLA)
- First Solar (NASDAQ:FSLR)
- NextEra Energy Partners (NYSE:NEP)
- Dominion Energy (NYSE:D)
- Enphase Energy (NASDAQ:ENPH)
- Sunrun (NASDAQ:RUN)
- ON Semiconductor (NASDAQ:ON)
One of the most obvious renewable energy stocks is Tesla. Tesla is primarily known as the high-flying make of pricey electric vehicles, a status worth something, as evidenced by TSLA stock more than tripling this year. However, Elon Musk’s company is a more encompassing clean energy play.
It reaches into residential solar installations via its SolarCity, a company Tesla essentially rescued a few years ago. Moreover, Tesla is looking to make its own lithium-ion battery cells – a task made easier by last year’s $200 million purchase of Maxwell. That deal could help Tesla solve one of the most important riddles in the electric vehicle space: expanding battery capacity while not losing power after a charge.
Via it’s Powerwall product, Tesla helps solar customers solve another quagmire: accessing power when the renewable energy flails, as it recently did in California, prompting a spate of rolling blackouts. Powerall allows residential customers to store solar power and use it when the sun isn’t out or when the the traditional electric grid fails.
Of course, electric vehicles will be a major driver of TSLA stock. In the first half of this year, Tesla controlled 81.66% of the North American electric vehicle market.
First Solar (FSLR)
First Solar is the largest U.S.-based solar company. Up 38% year-to-date, the stock resides around two-year highs. And there could be more in the offing for the solar panels giant. Not only did the company recently crush second-quarter estimates, its Series 6 product has 12 gigawatts of order backlog from this year through 2023.
Adding to the case for FSLR stock is that the company is shedding some non-essential businesses, such as project construction and operating services. Those units were homes to waning margins and no longer an important focuses for the company. Impressively, First Solar has one of the industry’s strongest balance sheets and is on pace to deliver robust free cash flow over the next several years.
“We continue to believe First Solar can reach $5 per share of annual free cash flow before growth by 2023. We value its cash and 2021-22 backlog at $26 per share,” according to Morningstar.
First Solar is well-positioned to capitalize on expanding solar power adoption around the world. When companies and states set net zero carbon goals by such and such a year, solar is often part of the equation. First Solar should benefit from the trends of declining costs and increased adoption.
NextEra Energy Partners (NEP)
Of renewable energy stocks, NextEra Energy Partners has a great setup. It was spun off from NextEra Energy (NYSE:NEE). NEP runs NEE’s renewables businesses, a coup for the spin off because the former parent is the world’s largest producer of solar and wind power.
Another benefit to investors beyond the built-in relationship with NEE is that renewable energy isn’t a regulated market, as are traditional utilities. That means NEP can sell its power all over the U.S., expanding its client base beyond its former parent.
In addition to its solar and wind exposure, NEE is a player in the burgeoning battery storage arena. The company also sees opportunity in hydrogen – one of the most overlooked corners of the renewable space. Emissions-free hydrogen power could take some time to materially affect NEE’s bottom line for the better, but there’s a 3.77% dividend yield to compensate patient investors.
Dominion Energy (D)
Dominion Energy could be another version of NEE. The company recently sold its natural gas pipeline and output business to Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) for $10 billion to — you guessed it — focus more on renewables.
Virginia, Dominion’s home state, has one of the most ambitious clean energy agendas in the country. The commonwealth wants to have a combined 21 gigawatts of solar and wind power and 2.7 GW of storage over the next 15 years. That’s heavy built in demand at home for Dominion. Currently, renewables make up about 5% of the company’s production portfolio, but that number is poised to soar. Jettisoning the gas business makes it easier for Dominion to hone its green focus.
Owing to its history as a traditional utilities provider, Dominion stock still acts the part and has a 4.79% yield to go along with it. That’s exceptional in the renewable energy realm.
Enphase Energy (ENPH)
Enphase is a designer and producer of home solar energy kits with a specialty in solar power inverters, which allow solar power to be fed directly to power grids. The company’s Ensemble energy storage product suite puts it into competition with the aforementioned Tesla Powerwall offering, but there’s room for multiple players in this market.
In the U.S. alone last year, solar installations jumped 23%. That was a record, but it’s one that’s going to fall in a big way in 2020 with installations forecast to climb 47%. The global market for photovalaic (PV) inverters is strong, too, pointing to international opportunity for Enphase.
“The PV inverter market achieved record shipments, growing by 19% to 126 GW in 2019 driven by booming shipments in key markets such as the United States, Spain, Latin America, Ukraine, and Vietnam. PV inverter revenue also increased rapidly, surpassing $9.1 billion in 2019 for the first time,” notes IHS Markit.
The research firm said the residential market drove that growth, led by China, United States, Netherlands, Japan, and Australia.
Cue the solar-related puns for Sunrun, because RUN stock is higher by 267% this year, making it one of the best-performing clean energy names. Sunrun’s home battery solution, Brightbox, puts it at the forefront of the residential storage market. Recently, RUN stock more than doubled in the span of just 16 trading sessions. Analysts say this is an example of a name that should benefit if Biden wins the White House.
“The company may also benefit if a Democratic sweep during the November U.S. election brings Mr. [Joe] Biden’s renewable energy policy to fruition (Biden targets deploying solar on ~8mm rooftops), though we are not baking this into our model at this time,” writes JPMorgan’s Paul Coster.
The stock, a recent addition to the S&P MidCap 400 Index, could offer investors more upside if it can effectively scale to the point that it drives customer acquisition costs lower and as virtual power grids become more readily accepted. Virtual grids are a longer-ranging catalyst, but if Sunrun is able to execute on that front, its 2020 performance could be just the start of something more substantive.
ON Semiconductor (ON)
Semiconductors are integral parts of the renewable energy equation. That’s significant for ON Semiconductor, as the company continues efforts to bolster business outside of the commoditized memory chip space.
In recent years, the company made deals to bolster its footprints in the automotive, power management, and image sensors sectors. Although ON often flies under the radar in the semiconductor equity conversation, it has deep reach into the alternative energy ecosystem and belongs among renewable energy stocks.
“ON Semiconductor’s boost and inverter Power Integrated Modules (PIMS) anchor the solar power system, while our gate drivers, sensing, control, and peripheral power products complete the system,” according to the company.
ON chips are used to power electrification in electric vehicles and in charging products for those vehicles, confirming that the chip maker has product depth in the alternative energy industry.