After major gains in 2020, renewable energy stocks have cooled. But these four are worthy of buying at a discount.
April 2019 was the first month that renewable energy sources provided more power to U.S. customers than coal (despite government support for that dirty old industry), and coal’s share of the energy market has continued to slip, while renewable energy’s share grows, thanks to increasingly compelling economics. Bottom line: Coal is on the way out, all over the globe, and eventually other fossil fuels will follow it, displaced by ecologically cleaner renewable energy systems like solar power, wind power and fuel cells that typically use hydrogen and oxygen to create electricity. So if you’re looking to make big profits in the energy sector (because as the world grows, people continue to demand more power), renewable energy stocks are the best choice.
Following are four of the best stocks in the renewable energy sector today, with the most conservative first and the most aggressive last.
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4 Renewable Energy Stocks to Buy
Renewable Energy Stock #1: NextEra Energy (NEE)
NextEra is huge, with $17 billion in revenues. Its Florida Power & Light division serves more than 5 million customers while its Gulf Power division serves roughly half a million. But what’s more important for my thesis is its NextEra Energy division, which is the world’s largest generator of renewable energy from wind and sun as well as a world leader in battery storage—and which serves customers in New Hampshire, Iowa and Wisconsin as well as Florida. Analysts are looking for EPS to grow 9% this year to $2.52 per share and 8% next year to $2.73 per share. As for the stock, it’s down 5% this year after a big 2020, with a steep drop-off in February and March along with most growth stocks. But it put in a clear bottom at 70 then that it’s since tested a couple times, finding support each time. You could buy here (72) at the low end of its 70-to-80 range, or wait until it breaks above its moving averages. In the meantime, the 2.1% dividend yield helps. It’s a nice play for risk-averse investors seeking income.
Renewable Energy Stock #2: SolarEdge Technologies (SEDG)
Based in Israel, SolarEdge makes and sells solar inverters and power optimizers that are extremely efficient at converting DC electricity produced by solar panels into AC electricity that can power homes and business; these components are so superior to all other solutions that they’ve been installed in solar systems in 133 countries! 2019 saw revenues of $1.43 billion, up 52% from the year before, but 2020 yielded $1.46 billion, up a mere 2.5%—so growth patterns are not smooth here. But that looks like a blip, as analysts expect SolarEdge to bounce back to 29% top-line growth this year and another 25% next year. Plus, the future is bright, as solar power becomes increasingly affordable all over the globe. As for the stock, it’s cooled off this year after a massive 2020, down 25% year to date. But the worst appears to be behind it, having bottomed in the low 200s about a month ago.
Renewable Energy Stock #3: Enphase Energy (ENPH)
California-based Enphase is also in the solar inverter business, and while Enphase is roughly only half the size of SolarEdge, it’s growing faster; 2019 revenues were $620 million, up 94% from the year before, while 2020 saw $774 million, up 24%. Enphase has more than 300 patents, has shipped more than 28 million inverters, and has operations in 20 countries. As for the stock, it looks a lot like SEDG: down sharply for the year (-19%), but building a base on the heels of a nice bounce-back. Another move higher from here seems likely.
Renewable Energy Stock #4: Plug Power (PLUG)
PLUG is a stock I’ve known since 2000, when it was one of the tech stocks that flew to giddy heights in the final phase of the dot-com bubble—and then crash-landed. Basically, it was ahead of its time. The stock had another strong run in 2013—but that too was followed by years of retrenching, and now here we are again, with PLUG strong technically and, hopefully, strong financially as well. To be clear, Plug Power is not a dot-com stock; its technology is based on fuel cells, which use hydrogen today to generate electricity in the harshest off-grid environments, which power electric industrial vehicles like forklifts, and which will soon be powering on-road vehicles as well—as the hydrogen market develops. In 2020, the firm shipped 40,000 fuel cells, reached more than 100 fueling stations, and was through-putting more than 40 tons of hydrogen per day. Financially, the company has not yet turned profitable, and there are no profits visible in the year ahead, but 2019 saw revenues of $230 million, up 28% from the year before. Sales retreated in 2020, but like many things during the pandemic year, it looks like an aberration; analysts see 39% growth this year, and 56% next year. Accelerating top-line growth is one of the biggest indicators of strength we look for.
As for the stock, it’s cooled off after zooming from a share price of 3 entering to 2020 to as high as 66 this January (you read that right). Shares fell by more than two-thirds from January through May, and the selling seems to have mercifully ceased for the time being. You could wait to see more evidence of a meaningful uptrend (perhaps some separation from the 200-day moving average) before jumping into this more speculative, volatile stock. Or you could buy here now that it seems to have regained momentum after an onslaught of selling.
Do you own any renewable energy stocks? Tell us about them in the comments below.
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
*This post has been updated from an original version, published in 2020.