The solar energy boom is the modern equivalent of the California Gold Rush of 1848.
Data from Wood Mackenzie Power & Renewables and the Solar Energy Industries Association notes that it took 40 years to reach 1 million solar installations in the U.S., but just three more years to hit 2 million installations. And the forecast for 2021 alone is 3 million installations.
Green energy exchange-traded funds (ETFs) are on the rise as earnings improve and investors pile into solar stocks. This is evidenced in the bellwether Invesco Solar ETF (TAN), which has more than doubled over the past year, though lately, it has cooled off.
With climate change firmly atop the Biden administration’s agenda, the set up for solar stocks looks good.
And like the supply companies that profited during the gold rush selling picks and shovels to eager prospectors, solar energy offers a similar “pick and shovel” opportunity. Companies that make components, batteries, the materials to produce panels or the software to manage them are riding the coattails of the inexorable march away from fossil fuels and toward solar power.
Here are five of the best solar stocks that offer a differentiated strategy for profiting from the green energy boom.
Data is as of May 10.
- Market value: $11.1 billion
Israel-based SolarEdge Technologies (SEDG, $213.34) makes inverters, a key component of the microgrid that delivers solar energy to where it’s needed in homes, schools, businesses, campuses and beyond.
Shares of SEDG have been on a tear the last two years, but have declined more recently to current levels near $210 since hitting an all-time closing high near $365 in December.
Sentiment has likely tempered on the solar stock thanks to a modest 2% rise in 2020 revenues and a 3% drop in net income. The company’s earnings release was mum on the precise reason for this, but declines in both gross and operating margins suggests that as the market for microgrids expands, so too do costs, at least at this stage of the game.
This should be of little concern for longer-term investors looking at solar stocks.
First, SEDG is sitting on just over $1 billion in cash and marketable securities, with just $17 million in debt due this year.
Next, cash flow from operations for 2020 was $223 million, almost twice reported net income, and this easily covered $126 million in capital expenditures (CapEx) with a sizable cushion left over.
Finally, about 40% of SEDG sales come from the U.S. While renewable energy policies have been wobbly, a progressive administration coupled with 37 states that have renewable energy targets offers a good set up for sales and earnings growth.
Consensus estimates for SolarEdge Technologies’ fiscal 2021 are $3.82 per share, which, if realized, would represent a 37% jump from 2020 basic earnings per share (EPS) of $2.79 – a pretty nice bump.
- Market value: $16.0 billion
Enphase Energy (ENPH, $118.12)…