Jeff Bezos is widely credited with reminding investors that “the stock is not the company, and the company is not the stock,” something he said shortly after the dot com bubble burst and Amazon’s stock was kneecapped from 113 a share to right around 6 … in less than a year.
But, as any dyed-in-the-wool value investor knows, Bezos’s statement was nothing revolutionary. The entire field of value investing is premised on the idea that market overreactions can quickly lead to solid companies trading at significant discounts.
And few sectors epitomize that phenomenon quite so well as renewable energy, namely solar stocks.
Renewable energy has been one of the fastest-growing industries in the world for years. But renewable energy stocks have long been … bleh. The Invesco WilderHill Clean Energy ETF (PBW), a good proxy for clean energy stocks, peaked at 140 per share … in 2007. Its highest closing price since was in February 2021, at roughly 133 a share. Today, it trades at a mere 22 per share. Yuck.
Recently, part of the problem has been wind. The Inflation Reduction Act President Biden signed in 2022 – aimed at reducing America’s greenhouse gas emissions by roughly 40% below 2005 levels by 2030 – was supposed to set in motion a boom in renewable energy projects thanks to sizable tax breaks and other incentives. But new wind projects – for a variety of reasons, namely that wind projects are more specific in their location needs – have thus far badly lagged behind projections, at only a quarter of the average capacity additions (measured in gigawatts) expected by 2027, according to a New York Times story this month.
Meanwhile, solar projects have more than picked up the slack. The U.S. is expected to add close to 40 gigawatts of solar energy capacity this year – more than double last year’s tally and more than triple what was added in 2022. According to Inflation Reduction Act estimates, solar gigawatts added could reach an average of 60 by 2030 – and solar projects are already in line with initial projections.
And yet, solar stocks haven’t exactly set the world on fire either. The Invesco Solar ETF (TAN), whose holdings include some of the biggest publicly traded solar power companies in the world, with American companies First Solar (FSLR) and Enphase Energy (ENPH) its two largest positions, is down 20% year to date and about 50% since President Biden signed the Inflation Reduction Act on August 16, 2022. Mind you, that sharp nosedive in solar stock share prices has come at a time when solar companies around the world are almost universally reporting record sales.
As Bezos said, the company is not the stock.
Solar Stocks Due Are Undervalued
But if you look at the fraught history of renewable energy stocks, they never stay down too long. In 2013, the PBW was up 50% after bottoming in November of 2012. After another bottom in November of 2016, the PBW shot up 41% in the next 13 months. After the ETF cratered along with the rest of the market during the 2020 Covid crash, it rose more than five-fold – from 24 to 132 – in the ensuing 10 months!
Of course, renewable energy stocks have since pulled back sharply once again. But it appears that another bottom has been put in. The PBW dipped to a closing low of 19.21 on April 19. It has touched as high as 24 since, though it has pulled back to just above 22 in recent weeks.
With momentum potentially returning to renewable energy stocks – and given the booming growth in solar projects in the wake of the Inflation Reduction Act – I recently added an under-the-radar solar stock to my Cabot Value Investor portfolio, and you would probably fare well buying any number of undervalued solar energy stocks now and holding on to them for the next couple years.
