Use these solar stocks to fire up your portfolio this year.
The time may be right again for buying solar energy stocks, or at least adding them to your watch list. Equities in the industry had become overvalued, experts say, leaving them primed for their current downturn, which was fueled by the shift from growth stocks as interest rates rise, burgeoning input costs amid broader inflation and supply chain constraints that have made solar installations more expensive. Additionally, there were increasing worries that the solar-supportive Build Back Better bill wouldn’t pass and uneasiness about potential solar industry rule changes in California. Amid the angst, these seven solar stocks are all worth a good deal less than they were a year ago, perhaps making them ripe for bargain hunting given the bright future ahead for the expanding solar industry.
First Solar Inc. (ticker: FSLR)
Raw material cost inflation includes higher prices for aluminum, semiconductors and polysilicon, which is used to make the most common type of solar panels. But for First Solar, the polysilicon shortage is a competitive advantage. The solar cells it makes use cadmium-telluride technology, allowing it to skirt at least one major supply chain bottleneck. Not being reliant on polysilicon also means First Solar isn’t reliant on Xinjiang, a region in China where the U.S. says Muslim minorities are forced to work in the industry against their will. Much of the world’s polysilicon comes from Xinjiang. First Solar’s technology also means its manufacturing process has a smaller carbon footprint than those making panels from polysilicon. “As a result, we would expect First Solar to increase global market share of solar panels and in some regions command a price premium to more conventional crystalline silicon competitors,” says Max Slee, portfolio manager with Ecofin.
Sunrun Inc. (RUN)
California has been debating a controversial plan to change the way rooftop solar users are compensated when they provide extra power to the grid in what is known as net metering. That has weighed on Sunrun stock, which provides solar panels and batteries for purchase or lease. But the proposed changes in California have been put on hold, potentially giving shares some breathing room. “The drop has been overblown,” says Peter Krull, CEO at Earth Equity Advisors. “With the indefinite delay in the changes, this is a great opportunity to buy in.”
Sunlight Financial Holdings Inc. (SUNL)
There is need in the market for financing solar installations that most banks aren’t meeting, Krull says. That should be an opportunity for Sunlight Financial, which should be considered one of the best solar stocks due to its industry role, but the company’s shares have fallen sharply since it started trading publicly last year. With such little public market experience under its belt, the company could be risky. But the reward could be big if demand for home solar systems continues to expand. By 2028, U.S. residential solar photovoltaic sales could top $14 billion, up from $9.1 billion in 2020, according to Grand View Research. Although the Build Back Better agenda has stalled, portions of the plan that include support for the solar industry could still pass, likely benefiting companies like Sunlight Financial.
SolarEdge Technologies Inc. (SEDG)
Amid growth in the solar industry, there is a trend toward more systems that combine solar panels with battery storage. One solar components company that has been wading into the battery market is SolarEdge Technologies. “Attractive global rooftop solar growth and the expansion of SolarEdge’s business model toward in-house battery cell manufacturing should deliver attractive earnings growth,” Slee says. He likes that the company’s market is regionally diversified, which means it might be able to weather near-term policy uncertainty in the U.S. better than many other solar energy stocks.
JinkoSolar Holding Co. Ltd. (JKS)
Because of a more risk-averse attitude on Wall Street right now, investors are selling renewable energy companies even as they grow quickly compared with fossil fuels. This leads to solar stocks like JinkoSolar being undervalued, says Garvin Jabusch, chief investment officer with Green Alpha Advisors. “That combined with Chinese political risk have left this very clear global leader … more than dramatically undervalued,” Jabusch says. Despite showing strong sales growth and gross margins, a valuation that compares share price to annual sales means many in the market are valuing the company with numbers “normally reserved for companies that are in imminent danger of bankruptcy and delisting,” he says. “More risk has been priced in than actually exists, resulting in potential asymmetrical upside for people willing to buy right now.”
SunPower Corp. (SPWR)
In 2020, SunPower spun off most of its manufacturing assets and now focuses on selling, installing and financing solar panels. It recently agreed to sell its commercial and industrial solutions business to TotalEnergies SE (TTE), as SunPower focuses more on the residential sector after its purchase of residential provider Blue Raven Solar. “SunPower is doubling down on residential growth,” CEO Peter Faricy said at the time of the acquisition announcement. SunPower also recently launched a financial services institution to provide loans to American homeowners who want to add solar systems. Strong residential demand has resulted in SunPower’s largest-ever sales backlog, the company said in January.
Maxeon Solar Technologies Ltd. (MAXN)
Maxeon Solar Technologies is the company that SunPower spun off. The newer company designs, makes and sells solar panels in more than 100 nations. In the third quarter, its utility-scale business booked its first major project in India and added around 400 megawatts to its backlog of U.S. projects. As of the end of September, nine hedge funds were bullish on the company, an increase from eight the previous quarter, according to Insider Monkey, which tracks hedge fund sentiment. Millennium Management boosted its stake in the company by more than 500% in the third quarter, the insider trading and hedge fund data website says.
These solar stocks have the potential to heat up this year:
— First Solar Inc. (FSLR)
— Sunrun Inc. (RUN)
— Sunlight Financial Holdings Inc. (SUNL)
— SolarEdge Technologies Inc. (SEDG)
— JinkoSolar Holding Co. Ltd. (JKS)
— SunPower Corp. (SPWR)
— Maxeon Solar Technologies Ltd. (MAXN)
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7 Top Solar Stocks for 2022 originally appeared on usnews.com
