Renewable energy stocks: now is the time to buy?
Renewable energy stocks have been on a wild ride so far this century as the industry has gone through a number of boom and bust cycles. We’ve seen stocks skyrocket, some of the biggest solar panel makers have gone out of business, and even finance companies have gone bankrupt.
Given what investors have seen happen in renewables over the past two decades and where the industry is today, here’s why I’m very bullish on renewables stocks right now.
Image source: Getty Images.
The story of growth
Renewable energies are booming around the world. The graph below shows the growth in wind and solar power generation in the United States during this century; you can see that they continue to grow rapidly. But wind and solar still only account for about 12% of all electricity produced in the United States.
Wind power production data in the United States by YCharts
Wind and solar now trump coal, natural gas and nuclear power on the sole basis of the cost of electricity, so there is no doubt that they will continue to grow. And as wind and solar become more economical, we’ll likely see more energy storage and new technologies like hydrogen emerge. The future is bright for renewables, as long as the companies you buy can make money with what they produce.
The financial situation becomes clearer
There are a number of ways to invest in the renewable energy industry, but I will use solar as a proxy because it has more state-owned companies than wind and a longer history in public markets than anything. like energy storage or hydrogen.
The solar industry has gone through many changes over the past decade as costs have fallen rapidly, some companies have gone bankrupt, and new business models have emerged. Today we are entering a more mature phase for the industry in which companies are establishing technological advantages and a scale that helps create a competitive divide. The result is steadily increasing profitability, which you can see below from First solar (NASDAQ: FSLR), Enphase Energy (NASDAQ: ENPH), SolarEdge Technologies (NASDAQ: SEDG), and SunPower (NASDAQ: SPWR).
FSLR Net Income Data (TTM) by YCharts
As mature as the solar industry becomes, other segments of renewable energy are not as mature. For example, energy storage, hydrogen and even emerging nuclear technologies are barely financially stable and closer to the nascent stage of the business cycle than to maturity.
The good news for investors is that we can find profitable and competitive renewable energy companies, which hasn’t always been the case.
How to invest in renewable energy today
I classify renewable investments into three categories: financiers, solar stocks, and speculative investments. And there are good opportunities in all three.
Financiers are companies that build or buy renewable energy projects, usually with long-term contracts to sell electricity to a utility. They generate very stable cash flow and often come with a dividend. Brookfield Renewable Energy Partners (NYSE: BEP) and NextEra energy partners (NYSE: NEP) are both leaders in this field and are exposed to wind and solar energy projects. They are also starting to acquire new technological projects like energy storage, which can provide a service to the grid. The reality of the energy industry is that a lot of money has to be invested to build projects and generate renewable electricity – and Brookfield Renewable Partners and NextEra Energy Partners are essential to making clean energy a reality.
I focus on the solar industry in part because there are very few publicly traded wind-focused companies in the United States. and Enphase Energy in power electronics at the module level. All three companies are riding the wave of solar power growth and have emerged as industry leaders as competitors have shrunk.
On the speculative side, I see a huge opportunity in hydrogen. Flowering energy (NYSE: BE) is a leader in the solid oxide fuel cell industry; He’s also built a nearly $ 1 billion emergency power business with new markets like electrolysis and marine power on the horizon. If costs continue to fall, Bloom Energy could be a big winner in the hydrogen industry.
Whether you want to take a risky bet on Bloom Energy, a safer investment in Brookfield Renewable Partners, or something in between, there is something for everyone in the renewable energy industry. And as the industry matures, we should also see profitability rise, which is good news for investors who can buy and own the best companies in the industry for the long term.
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Travis Hoium owns shares of Bloom Energy Corp, First Solar, NextEra Energy Partners and SunPower. The Motley Fool recommends First Solar and SolarEdge Technologies. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.