Solar energy has become a hot investment theme. Companies in the alternative energy industry are currently on a mission to help the global economy shift away from fossil fuels toward solar energy. This transition is expected to take many years as well as trillions of dollars, creating a compelling opportunity for long-term investors. Therefore, we will take a close look at seven solar stocks with future growth potential for hot summer days ahead.
The solar energy market is gaining pace at an accelerating rate. Recent metrics highlight, “Global solar energy market size was valued at $52.5 billion in 2018, and is projected to reach $223.3 billion by 2026, growing at a CAGR of 20.5% from 2019 to 2026.” Despite a significant surge in the price of polysilicon used in solar panels, solar energy is still on track to be the lowest-cost source of power generation in the coming years.
In 2020, solar stocks delivered lucrative returns. For instance, the MAC Global Solar Energy Index was up over 230%. However, many solar stocks have seen some correction this year. The widely-followed exchange-traded fund (ETF), Invesco Solar ETF (NYSEARCA:TAN), is down almost 24% year-to-date (YTD). The decline is in part due to profit-taking. But the uncertainty around the Federal Reserve’s interest-rate course and how it may impact growth stocks has also put pressure on solar shares.
So, with that information, here is our list of seven best solar stocks to buy in the rest of 2021.
- ALPS Clean Energy ETF (NYSEARCA:ACES)
- Brookfield Renewable Partners LP (NYSE:BEP)
- First Solar (NASDAQ:FSLR)
- KraneShares Global Carbon ETF (NYSEARCA:KRBN)
- NextEra Energy (NYSE:NEE)
- Solaredge Technologies (NASDAQ:SEDG)
- SunPower (NASDAQ:SPWR)
Now, let’s dive in and take a closer look at each one.
Solar Stocks to Buy: ALPS Clean Energy ETF (ACES)
52-Week Range: $47.32 – $101.72
Dividend Yield: 0.53%
Expense Ratio: 0.55% per year
Our first choice is an ETF, namely the ALPS Clean Energy ETF. It provides exposure to companies that focus on the alternative energy sector. The fund started trading in June 2018 and has around $955 million in assets.
ACES, which has 46 holdings, tracks the returns of the CIBC Atlas Clean Energy Index. In terms of the sub-sectoral breakdown, the Technology sector makes up the highest portion with 34.42%, followed by the Utilities and Industrials sectors with 26.16% and 19.05%, respectively.
The top 10 holdings account for around half of the fund. Among the leading names are the home energy solutions manufacturer Enphase Energy (NASDAQ:ENPH), residential solar systems Sunrun (NASDAQ:RUN), PV Solar solutions First Solar, electric vehicle (EV) leader Tesla (NASDAQ:TSLA), and hydrogen fuel cell solutions developer Plug Power (NASDAQ:PLUG). The market has been paying close attention to many of these names and their product offerings.
2020 was a solid year for the green energy sector. And in the past 52 weeks, ACES is up more than 34% and hit a record high in February. Since then, many of the names in the fund have come off those high levels seen in early 2021. Interested readers could find value around these levels.
Brookfield Renewable Partners LP (BEP)
52-Week Range: $29.01 – $49.87
Dividend Yield: 3.14%
Brookfield Renewable Partners operates renewable power generating assets that include conventional hydroelectric facilities and wind facilities in North America, Latin America, and Europe.
Brookfield released second-quarter results in early August. Revenue increased 8% year-over-year (YOY) to $1.02 billion. Net income was $110 million, or 13 cents loss per diluted share, compared to a net loss of $10 million, or 11 cents loss per diluted share, in the prior-year quarter. Cash and equivalents ended the quarter at $530 million.
On the results, CEO Connor Teskey said, “We had a strong quarter, as we delivered solid financial results and executed on a number of key strategic initiatives including securing a 25-year contract-for-difference to support almost 1.5 gigawatts of offshore wind, initiated one of the largest onshore wind repowerings in the world, and entered a strategic collaboration with the world’s largest corporate buyer of renewable power.”
Brookfield Renewable benefits from a strategy of both acquiring and growing renewable energy assets. Due to its scale and know-how, it is now a crucial global partner for companies looking to minimize their carbon footprints. For instance, Brookfield and Amazon (NASDAQ:AMZN) will develop new renewable energy projects. It has also agreed with Trane Technologies (NYSE:TT) to provide decarbonization-as-a-service.
The company finished Q2 with an impressive 31 gigawatts (GW) global pipeline of development opportunities, representing significant growth potential over its current capacity at 21 GW. In addition, it is currently repowering its 845-MW Shepherds Flat wind project, which is expected to boost its production by 25%.
BEP stock hovers at $38 per share territory, down almost 12% YTD. It currently trades more than 20% lower than its high in early January. The current price-sales (P/S) ratio stands at 2.82.
Solar Stocks to Buy: First Solar (FSLR)
52-Week Range: $59.52 – $112.50
Arizona-based First Solar designs and manufactures solar photovoltaic panels. It is also the world’s largest thin-film solar module manufacturer that uses cadmium telluride to convert sunlight into electricity.
First Solar released Q2 results in late July. Revenue decreased 22% YOY to $629 million. Net income came in at $82.5 million, or 77 cents per diluted share, down from $210 million, or $1.96 per diluted share in the prior-year quarter. Cash and equivalents totaled $2.1 billion, increasing $255 million from the prior quarter.
CEO Mark Widmar cited, “Commercially, market demand for our cadmium telluride, or CdTe, technology is at a record level, with year-to-date bookings of 9 GWDC. From a technology standpoint, we recently validated a world record CdTe module.”
In June, management announced that it is adding 3.3 gigawatts of manufacturing capacity in Ohio to bring its total U.S. capacity to 6 GW. While its competitors need to deal with numerous tariffs, increasing manufacturing capacity in the U.S. has allowed the company to sell solar panels tariff-free.
As First Solar does not depend on the global solar supply chain, it has a crucial competitive advantage. Most of its competitors need to purchase polysilicon, solar cells, and wafers mainly from Asia-based suppliers. Various supply chain disruptions overseas translate to higher demand and pricing power for First Solar’s thin-film panels.
FSLR stock trades around $93.50. It is down 3% so far this year, but has returned almost 29% in the past three months. Forward P/E and current P/S ratios stand at 29.85 and 3.48, respectively.
KraneShares Global Carbon ETF (KRBN)
52-Week Range: $18.88 – $38.28
Expense Ratio: 0.78% per year
Countries worldwide are increasingly adopting clean energy. Our next choice is another ETF that focuses on “Emissions trading, also known as ‘cap and trade’, is a cost-effective way of reducing greenhouse gas emissions.”
The KraneShares Global Carbon ETF gives exposure to the carbon allowances futures market. It tracks the HS Markit Global Carbon Index, offering coverage of cap-and-trade carbon allowances, such as the European Union Allowances (EUA), California Carbon Allowances (CCA) and the Regional Greenhouse Gas Initiative (RGGI).
As the move away from fossil fuel gathers pace, carbon allowances worldwide gain value. Fund managers highlight, “…as of December 31, 2020 the global price of carbon was $24.05 per ton of CO2. It is estimated that carbon allowance prices need to reach $147 per ton of CO2 to meet a 1.5°C global warming limit.” KRBN may be appropriate for investors who are concerned about the increase in cost of carbon emissions on their portfolios. As the cost of carbon emissions rise, KRBN typically benefits, while companies with heavy carbon footprints typically suffer.”
YTD, KRBN is up 52%. Investors who believe that the price of carbon could indeed be higher in the future could consider investing in the ETF.
Solar Stocks to Buy: NextEra Energy (NEE)
52-Week Range: $66.79 – $87.69
Dividend Yield: 1.83%
Juno Beach, Florida-based NextEra Energy’s regulated utility, Florida Power & Light, distributes power to roughly 5 million customers in Florida. In addition the renewable energy segment primarily generates and sells power throughout the U.S. and Canada.
NextEra released Q2 2021 results in late July. Total revenue was $3.9 billion in the second quarter. On an adjusted basis, the company reported earnings of $1.4 billion, or 71 cents per share, compared to $1.29 billion, or 65 cents per share in the prior-year quarter. Cash and equivalents at the end of the quarter stood at $1.44 billion.
Following the results, CEO Jim Robo cited, “We grew adjusted earnings per share by more than 9% year-over-year, reflecting continued strong financial and operational performance across all of the businesses.”
NextEra is a leader among utility companies in the U.S. in terms of solar or wind power generation capacity. The company is investing around $50 billion in renewable energy infrastructure projects. NextEra is benefiting from low lending rates and a significant decline in electricity-generation costs as its renewable energy capacity increases.
As the transition to green energy accelerates, NEE stock looks like an excellent stock to buy and hold in the long term. NEE stock currently hovers slightly below $84, up 8.8% YTD. Forward P/E and current P/S ratios stand at 33.11 and 9.77, respectively.
Solaredge Technologies (SEDG)
52-Week Range: $178.32 – $377
YTD Price Change: Down 16%
Israel-based Solaredge Technologies develops and sells direct current optimized inverter systems for solar photovoltaic installations. Its portfolio comprises power optimizers, inverters, and a cloud-based monitoring platform and addresses a broad range of solar market segments.
Solaredge released Q2 2021 results in early August. Revenue increased 45% YOY to $480 million. Non-GAAP net income was $72.5 million, or $1.28 per diluted share, up from $55.5 million, or 98 cents per diluted share in the prior-year quarter. Cash and equivalents ended the quarter at $524 million.
CEO Zvi Lando cited, “We are happy to finish the second quarter of 2021 with record revenues in both our solar and non-solar businesses and with continued strong demand for our products in the various geographies and across the different segments.”
SEDG stock surged 16% on Aug. 3, after the company reported earnings that significantly beat analysts’ expectations. The shares currently hover at $268. While SEDG stock has soared almost 40% over the past three months, it still trades more than 20% lower than its high in early January.
Management anticipates revenue to grow by 60% YOY in Q3, around $520-$540 million. That figure would be substantially above the $505 million the Street has been expecting. SEDG stock currently trade at nearly 59 times forward earnings and about 10 times current sales.
Solar Stocks to Buy: SunPower Corp (SPWR)
52-Week Range: $7.31 – $57.52
San Jose, California-based SunPower manufactures solar module manufacturer and installs solar systems. The company utilizes crystalline silicon technology and boasts the industry’s highest conversion efficiencies. French oil giant TotalEnergies (NYSE:TTE) has recently become a shareholder.
SunPower released Q2 2021 results in early August. Revenue soared 42% YOY to $309 million. The company reported a non-GAAP net income of $10 million, or 6 cents per diluted share, compared to a net loss of $17 million, or 10 cents loss per diluted share, in the prior year quarter. Cash and equivalents ended the quarter at $140 million.
Moreover, CEO Peter Faricy cited, “Consumer demand for better, more resilient energy is increasing and with more than 100 million homes in the U.S. that could benefit from solar and storage, we see a significant opportunity to meet that demand.”
SunPower is fast becoming a smart-home company by focusing on the residential and light commercial (RLC) solar segment. It has recently added energy storage services via SunVault and electric vehicle (EV) charging via its Wallbox EV partnership. These moves should help the company increase its overall margin for RLC solar installations.
SPWR stock fell 9% on Aug. 4, after the company announced Q2 results that fell short of market expectations. The stock currently trades around $21, down 17% YTD. Despite trading 60% below their high in late January, SPWR stock has returned 185% over the past 12 months. Forward P/E and current P/S ratios stand at 57.14 and 3.50, respectively.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.