What are the best solar stocks to own? Well, there are a lot of solid stocks to choose from in 2020.
The solar energy industry is growing exponentially. Across party lines in the United States and especially in the international sector, the move toward renewable energy is becoming more mainstream.
The statistics are undeniable. According to the International Energy Agency, global renewable energy grew by 1,200 gigawatts over the last five years.
And 60% of that energy growth is attributed to solar energy (1,200 gigawatts more than exceeds the average peak grid demand for the entire US).
Here are some other facts you should know about the industry.
- By 2026, the global solar industry is projected to be worth $223.3 billion.
- The cost of solar energy has plunged 90% over the past decade.
For a 50-foot view on the industry, over the last decade alone, solar energy has witnessed an average annual growth rate of 49%.
This growth is directly linked to strong federal policies like the Solar Investment Tax Credit.
Plus, rapidly declining installation costs and increasing demand across the private and public sectors for clean electricity.
There are now more than 85 gigawatts (GW) of solar capacity installed nationwide, enough to power 16 million homes.
Why Solar Stocks Should be on Your Radar
Furthermore, if these numbers were not impressive enough for you. The solar industry is just flat-out putting more people to work, which is another sign of a robust sector.
At the end of 2019, a quarter of a million Americans worked in solar, while the sector generated $18.7 billion in investment.
What was the catalyst? Well, as mentioned above tax credits had something to do with it, but falling equipment and infrastructure prices have also made a huge difference.
An average-sized residential system has dropped from a pre-incentive price of $40,000 in 2010 to roughly $20,000 today.
And what was previously only a California and Florida thing has changed. Solar is now a nationwide thing with almost every state seeing notable solar installations.
While most of these numbers above reflect residential growth, solar power has also helped Fortune 500 companies save money.
Apple, Amazon, Target, and Walmart have all invested heavily in solar facilities at various locations across the country.
Apple is leading the way with more than 390MW of commercial capacity and Amazon close behind with 329 MWs.
So, if you are convinced in the growth of solar energy, let’s look at the best solar stocks to own right now.
Best Solar Stocks
Now, before we talk about stocks, let’s go over a few ground rules about the industry and the stocks we are focusing on and why.
First, not every solar company is built to make money for shareholders.
Some of these companies are staying afloat on subsidies or money from venture capitalist dollars which is why its so important to do a through analysis before jumping in.
Furthermore, there are some companies that dabble in solar energy or own subsidiaries in the solar power industry, but we are mostly focused here on solar stock pure plays.
Best Solar Power Stocks
Here are the names we consider to be the cream of the crop.
First Solar, Inc. (FSLR)
FSLR takes the top spot because they are an OG in the space, and they have been around long enough to know where the pain points are.
First Solar sells thin modules along with white label engineering for third-parties.
For this reason, FSLR always has a rock-solid balance sheet versus some other companies that wax and wane between being in the black and being in the red.
However, one of the most exciting things going on right now for FSLR is that it has a backlog for the rest of the year. From the most recent earnings call:
With a contracted backlog of 11.9 gigawatts, we remain effectively sold out through 2020 and have two gigawatts remaining to sell of our expected 2021 supply.
And COVID-19 has not affected the company all that much.
Many reports were bearish on the solar industry at the start of the pandemic due to reduced shipping lanes and travel, but First Solar has not seen a dip in sales and the company looks healthy heading into Q4 and 2021.
SolarEdge Technologies, Inc. (SEDG)
We think the multiples for SEDG are on-point for its peers, and we also think the company could take a leap if Joe Biden is elected to office.
In fact, the campaign has pledged more than $2 trillion in clean energy and infrastructure versus the current administration’s $100 billion. That is a gigantic increase, but we still don’t recommend reading into administration promises too closely.
In that scenario, we think most renewable energy companies will see a bump and SolarEdge makes sense.
SEDG is an Israeli company, that, if readers are not familiar, provides optimizers, inverters, monitoring equipment, tools, and accessories for power harvesting, conversion, and efficiency of solar energy.
Europe is a big area for SEDG. The company has done well marketing across the EU and the continent accounted for $144 million in revenue. Which actually represents a revenue increase of $22 million from last quarter.
The American marketplace has more competition, but SEDG has shown itself adept at making hay in Europe.
SEDG has an attractive valuation for a company that is operating in 30 markets, and SEDG’s technology has become some of the most respected in the industry.
Furthermore, SolarEdge has done a fantastic job of reinvesting in the business, which is why its technology is ranked #1, especially in the case for inverters, where it is heads and tails the market leader.
SEDG makes it into one of our best solar stocks list because its technology is strong and will certainly make it a market leader for some time.
Best Solar Stocks To Buy
Enphase Energy, Inc. (ENPH)
We love this stock. Any stock that makes the nuts and bolts of growing industries like renewable energy—which we think has an excellent chance of growing even bigger as ESG investing expands into more hedge funds and big banks.
But ENPH sells a home solar unit that runs through an Enphase microinverter. Which not only converts the power but tracks the energy data.
These products have been selling like hotcakes across North America. Even to the tune of bullying other competitors…
And, now, these microinverters are going to Europe and Australia. From a recent press release: “With a maximum output power of 366 volt-amperes (VA) and 96.5% EU efficiency. Enphase IQ 7A microinverters can generate up to 14% more power than any previous Enphase IQ microinverters. IQ 7A microinverters are software-defined.”
These microinverters are best in class. Potential shareholders should be looking to ride the wave on these babies. This solar stock has legs based on this product alone, but management is ambitious and one of the best in class.
Lastly, we think this is one of the better solar stocks on this list because it is more of a processor or semiconductor company than a pure solar company laying panels out in the field and ringing doorbells. And, hey, this company is booking revenues over 90% YoY and operating income is skyrocketing.
Hot fire. Easily one of the best solar stocks to own.
Sunrun Inc. (RUN)
Sunrun is more of your typical solar energy company. It manufactures, installs, and sells solar panels to residential solar energy customers.
On that alone, the company is not too exciting. But they recently just purchased Vivint Solar with an all-stock transaction.
“This is a transformational opportunity to generate consumer and shareholder value, realize annual cost synergies and bring cleaner, affordable energy to more homes,” Sunrun said in a news release.
The company’s market cap is now over $9 billion. Its stock price has increased from $14 at the start of the year to now $71, a 400% increase YTD.
RUN is exciting Wall Street stock traders. The company entity increases the customer base to half a million customers and an estimated $8,000 in value per customer.
The Largest Residential Solar Company
Why this deal was not flagged for anti-trust reasons is honestly beyond me (I mean these are the #1 and the #2 solar companies).
This deal creates a mega-company and it is as close to as a monopoly as you can get in residential solar.
With Vivint now on the same team, Sunrun will raise prices and gain technology. Technology that it did not have before, along with more salespeople roaming around subdivisions.
“Joining forces with Sunrun will allow us to reach a broader set of customers and accelerate the pace of clean energy adoption and grid modernization,” Vivint CEO David Bywater said.
However, we do expect COVID-19 to impact residential installs. In Q2, Sunrun installed 78 megawatts of solar capacity. A big drop from the 2,085 megawatts installed in Q1.
But, one positive catalyst and it sucks to say this. It might be returning West Coast homeowners who were displaced by wildfires.
Solar panels and batteries can over an extra day to two days of power when grids get shut down. It might be a selling point for homeowners who want some extra time to plan and make decisions.
SunPower Corporation (SPWR)
SPWR is experiencing weird times at Sun Valley High, but this is still a company to know.
If readers are not familiar, SunPower provides solar power components, including solar panels and system components, primarily to dealers, system integrators, and distributors.
Now, all that said, SunPower is spinning off their panel manufacturing business into Maxeon Solar Technologies. SPWR did this because it believed the move would allow them to reach international residential customers.
Why Wall Street Likes SPWR
Many on Wall Street liked the move because they felt like ti streamlined SPWR’s business model. Morgan Stanley analyst Stephen Byrd noted that pure-play rooftop solar installation was a better business model than manufacturing. While Baird said the Mazeon spinoff will give the company better margins going forward.
As SunPower CEO Tom Werner explained it, the move will permit “both SunPower and Maxeon to invest in key programs to drive their future profitable growth.” And will allow each to focus on their respective “areas of specialization, technology innovation, and economies of scale.
“The new SunPower will further develop as the leading North American distributed generation (DG), storage and energy services company with an end-to-end software platform, differentiated products and solutions and an asset-light approach,” added Werner.
SunPower Management announced that fiscal 2020 revenue is expected to be $1.06 billion to $1.10 billion. Net income will likely be $30 million to $40 million.
Adjusted EBITDA is expected to be $20 million to $30 million, with megawatts (MW) recognized of 465 MW to 510 MW.
Either way, we like what SPWR has done this year. The solar stock has been a true bright spot. Notching over 110% increase this year in share price. Volume has also been strong even during some rough patches due to the pandemic.
I think my major concern about SPWR is that at its current price. It is expensive. SunPower does have several interesting catalysts—like improved margins—but I would be careful about when you get into this one.
Best Solar Stocks: Conclusion
Ok, those are the best solar stock we recommend on Wall Street right now.
There is plenty of upside in the sector and plenty of room for growth. Overall, solar energy only accounts for around 2% of the total grid usage right now. That number is primed to go up.
Solar energy and renewables in general could see a huge boost in November.
So, if you feel like rolling a dice on the prospects of a Biden victory, I think you might not go wrong with any of these stocks because the whole industry is going to see a significant lift.
We don’t need to explain how pent up Democrats are to return the United States to a leader in green energy and other eco-centric policies like reducing carbon emissions.
In short, we think you should be watching election results carefully, even if you don’t have much stomach for it.