Solar Stocks are Back in Favor. To Take Advantage of the Momentum, Here are Your 10 Best Options.
While energy stocks remain out of favor, there’s one small slice of the energy business that’s super strong, thanks to both improving technology and governmental support, both in the U.S. and internationally—and that’s the solar power business.
In the U.S., residential solar installations were up 23% in the past year, bringing the installed base to 45.5 GW—enough to power 13.5 million homes. And that growth should continue, with solar capacity forecast to more than double over the next five years.
Internationally, the northern European countries are ahead on a Watt per capita basis, but China already has the greatest installed solar capacity, with more than 200 GW installed and more than 50 GW installed last year alone.
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Someday, the giants of this industry will be well-known behemoths, whose names will roll off the tongue just as ExxonMobil and Con Edison and Florida Power and Light do today. But at the moment, it’s a real horse race, with more than a dozen fast-growing public companies racing to both get big fast and to deliver earnings to their shareholders—which means there are great investment opportunities here.
Today, I look at the 10 best solar power stocks, starting with the strongest and working my way down.
The 10 Best Solar Power Stocks
Enphase Energy (ENPH)
Located in sunny California, Enphase is the world’s leading supplier of microinverters, which convert direct current (DC) energy from solar modules into alternating current (AC). Its products are used all around the world (U.S., Europe, Australia), though it’s notably weak in the Chinese market. And it has recently begun selling battery storage systems. Fourth-quarter results, released last week, saw revenues of $210 million, up 128% from the year before and earnings of $0.42 per share, up 740% from the year before. This was well above analysts’ estimates, and the stock gapped up big in response. It’s now up more than 200% from its November low and trading at record highs!
Daqo New Energy (DQ)
Daqo is a Chinese company focused on silicon, the raw material behind the word’s solar panels. Selling directly to manufacturers, it has a concentrated customer base; two customers accounted for 57% of revenues last year. For the third quarter, revenues were $66 million, up 5% from the year before. And Daqo has been consistently profitable for years—though patterns are uneven; in the third quarter, earnings were $0.67 per share, down 66% from the year before. As for the stock, it’s up 130% since December—and the good news is that it’s broken out above its high of January 2018 and is now trading at all-time highs.
Sunova Energy (NOVA)
Based in Houston, Sunova offers residential solar power systems and backup batteries in 20 states using a variety of power purchase and lease arrangements (which tend to provide great visibility into future revenue streams). The third quarter saw revenues of $36.6 million (this is the smallest company by revenues in the group), up 20% from the year before, and fourth-quarter results will be reported tomorrow (Tuesday, February 25) before the market open. There are currently no earnings, as the company is investing for the future. As for the stock, it came public last July at 12, bottomed at 9 in December and has been rocketing higher since, basically doubling in two months and trading at record highs.
Vertically integrated JinkoSolar is the world’s leading maker of silicon wafers, solar cells and modules, which it makes in China and sells to companies all over the world. Revenues actually decreased 5% in 2018, but rebounded in 2019. In the third quarter of 2019, revenues were $1.05 billion, up 8% from the year before, while earnings were $0.27 per share, also up 8% from the year before. The stock is up 93% from its November bottom—but still below its high of 2014.
Sunrun is the leading residential solar installer in the U.S., with about 16% market share and 271,000 customers, up 24% from a year ago. Customers sign 20- to 25-year contracts, so future cash flows are very visible, but earnings are still uneven, though the company has had positive earnings in each of the past three years. In the third quarter, revenues were $215 million, up 5% from the year before, while earnings were $0.23, up from a loss the year before. The stock is up 77% from the December bottom, trading at record highs.
SolarEdge Technologies (SEDG)
Based in Israel, SolarEdge is the second microinverter company in the industry, and like Enphase, it too sells all over the world. Fourth-quarter results, released last week, were excellent, featuring revenues of $418 million, up 59% from the year before (accelerating in recent quarters) and earnings of $1.65 per share, up 162% from the year before. The stock gapped up in response and is now up 76% since December, trading at record highs.
Canadian Solar (CSIQ)
Based in Ontario, Canadian Solar is the world leader in making and installing utility-scale solar power, having delivered systems to customers in over 150 countries. Revenues grew 10% in 2018, but in 2019, growth has been slipping. In the third quarter, revenues were down 1% to $760 million, while earnings were $0.66 per share, down 33% from the year before. Still, the stock is trending up with the rest of sector, up 60% since December, though well off its 2014 highs.
Vivint Solar (VSLR)
Utah-based Vivint is on the same track as Sunova, operating in 21 states, and offering its residential customers the choice of purchasing or leasing solar systems with the option of battery backup. In the third quarter, revenues were $104 million, up 33% from the year before, but as with Sunova, there were no earnings, as the company is investing for the future. Fourth-quarter results will be released March 10. The stock has been trading since 2014, so Vivint has more institutional investors than Sunova, and its stock is up 55% since its December low—though still below its highs of 2015.
The granddaddy of the industry, founded way back in 1985, Sunpower is based in California, where it manufactures solar cells and modules. But maturity means that growth has been difficult. Fourth-quarter results, released two weeks ago, saw revenues of $603 million, up 32% from the year before and earnings of $0.23, up from a loss the year before. Since December, the stock is up 47%, but still well off its 2019 high of 16.
First Solar (FSLR)
Arizona-based First Solar makes and sells solar cells and modules for residential and commercial markets all over the world. But the company is mature, struggling to maintain growth. Third-quarter revenues were $546 million, down 19% from the year before, while earnings were $0.29, down 46% from the year before. FSLR was a hot stock back in 2007, but it’s been trending sideways for six years. It’s up 16% over the past month—which in this crowd is like going backwards.
Which Solar Power Stock to Buy Now
The ideal combination would be a company with strong (even accelerating) revenue growth, strong earnings growth, a good growth story, and a strong chart that’s hit recent record highs and is now on a normal pullback. Lastly—and this is hard to quantify—the ideal stock is not over-owned and has great potential to climb higher as more investors become aware of it and develop positive opinions about it.
None of these solar power stocks meet all these criteria, which is not surprising. But the ones that come closest are Enphase (ENPH), Sunova (NOVA), Sunrun (RUN) and Solaredge (SEDG). And one of them was featured just last week in Mike Cintolo’s Cabot Top Ten Trader!
To learn its name, click here.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More