Renewable energy companies are in a slump, providing long-term investors with opportunities for bargain hunting.
The iShares Global Clean Energy ETF (ticker: ICLN) is down 28.8% so far in 2023, while the S&P 500 has climbed 13.3% as of Oct. 12.
Rising interest rates are a key factor in renewable energy companies being down. Building solar and wind farms or other green-energy infrastructure takes lots of money, and higher interest rates make it more expensive for these green-energy infrastructure companies to borrow. Inflation has also made the raw materials used for these projects more expensive.
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Still, the investment case for renewable energy is the global transition away from coal, oil and natural gas. To be sure, those forms of energy for electricity generation and transportation aren’t going away anytime soon, but renewables are increasingly in the mix and will be more so in coming years.
“In the short term, several challenges persist, particularly the risk that interest rates stay higher for longer, creating pressure from much higher capex, operational cost and project financing,” says Hua Cheng, portfolio manager with sustainable investment manager Mirova, adding that there has been a correction in the renewable energy sector. “This correction makes the valuation of (the) renewable energy sector more attractive, and we believe that the long-term future growth opportunity is not currently factored into the valuations of certain stocks.”
Here are seven renewable energy stocks that are likely to benefit from the long-term transition to clean energy sources, with a nearer-term performance catalyst listed for each:
| Stock | Upside catalyst |
| Vestas Wind Systems A/S (OTC: VWDRY) | White House’s 30 GW offshore wind goal |
| Iberdrola SA (OTC: IBDRY) | Strong management, diversified utility |
| NextEra Energy Inc. (NEE) | Positive multiyear earnings, growth outlook |
| L’Air Liquide SA (OTC: AIQUY) | Major player in legacy plus green hydrogen |
| Plug Power Inc. (PLUG) | Key green hydrogen electrolyzer supplier |
| Tesla Inc. (TSLA) | Top EV maker, diversified revenue streams |
| First Solar Inc. (FSLR) | European push for energy independence |
Vestas Wind Systems A/S (OTC: VWDRY)
The Biden administration has been accelerating the approval process for large wind farms off the U.S. coastline. The White House’s goal is to have 30 gigawatts of this type of energy production up and running by 2030, an ambitious goal given that the U.S. has been a laggard in offshore wind development compared with Asia and Europe.
This push opens a big market for companies involved in offshore wind, such as Vestas, the world’s largest manufacturer of wind turbines for both the offshore and onshore markets.
Deutsche Bank recently upgraded Vestas, reportedly saying its shares have been unduly pressured by negative industrywide sentiment stemming from quality concerns and supply chain issues.
“In this very consolidated sector, Vestas has key long-term competitive advantages on scale, technology and product quality,” Cheng says. “As one of the global leaders in wind turbine manufacturing, Vestas benefits strongly from the secular trends around the transition to more sustainable sources of energy, energy security and energy independence, supported by global climate agreements and regulation, but also geopolitical tensions which have led to an increased focus on energy security and independence, particularly in Europe.”
Iberdrola SA (OTC: IBDRY)
Iberdrola is a Spain-based diversified utility that has a strong position in wind and solar generation in Europe, the U.S. and Latin America. It’s also the parent company of Avangrid Inc. (AGR), an energy services and delivery company heavily involved in renewables.
Utilities can help shore up a portfolio’s defensive position because people need electricity regardless of what the economy or stock market is doing. While utilities won’t perform as well as tech companies when the market is hot, they’ll be able to cushion a portfolio during an economic downturn when growth stocks become less popular.
Cheng says Iberdrola’s management team has a leading strategic vision and a proven track record of execution.
NextEra Energy Inc. (NEE)
Cheng says the same thing about NextEra, which often makes lists of top renewable energy companies.
Its regulated utility segment engages primarily in the generation, transmission, distribution and sale of electric energy in Florida. Another segment produces electricity from renewable sources, including wind and solar. The company is also involved with green hydrogen, battery storage and nuclear plants.
NextEra recently reaffirmed its long-term financial outlook. It expects adjusted earnings per share to be in the range of $2.98 to $3.13 for this year and $3.23 to $3.43 for 2024. For 2025 and 2026, the company projects growth of 6% to 8% from the 2024 range.
“Iberdrola and NextEra are our top picks for diversified utilities in the long term,” Cheng says. “While they have diversified energy generation sources, renewable energy such as wind and solar is a key growth driver for their long-term businesses.”
L’Air Liquide SA (OTC: AIQUY)
Most of the world’s hydrogen is made using fossil fuels, but so-called green hydrogen is made using renewably sourced electricity.
Green hydrogen is a relatively small market right now, but over the long term, the technology holds promise for powering sectors where it is hard to abate carbon emissions, such as steelmaking, shipping and aviation.
French multinational L’Air Liquide is a major player in the legacy hydrogen business, so it isn’t a pure-play green hydrogen stock. Still, the company has long experience in the industry, which gives it an advantage over smaller startups.
“L’Air Liquide is a high-quality company and long-term compounder with historically defensive, stable growth that is now stepped up, thanks to increasing opportunities coming from hydrogen,” Cheng says.
He adds: “We like L’Air Liquide for its exposure to the low-carbon transition, as we understand the massive level of green capex needed in the coming years to reach net-zero objectives; and green hydrogen will play an increasingly significant role in this, including as fuel for transportation and power plants, heat for industry and buildings, and as feedstock for chemicals and products like food, metallurgy, etc.”
Plug Power Inc. (PLUG)
One of L’Air Liquide’s smaller competitors is Plug Power, which is a green hydrogen stock that appears to be a strong contender in the space.
Green hydrogen could one day become a competitor to lithium-based batteries in electric vehicles. Mining lithium has environmental consequences that green hydrogen avoids, giving it attractive potential as an alternative to lithium, which is projected to enter a shortage in the coming years.
While the auto market is still far off, Plug Power is working on making electrolyzers to create green hydrogen, and hydrogen fuel cells to convert that hydrogen back into electricity.
In early October the company said it is the preferred supplier of 550-megawatt electrolyzers to iron-ore miner Fortescue Metals Group Ltd. (OTC: FSUGY) for a project in Australia.
Beyond that, the companies have signed a memorandum of understanding to evaluate the potential supply of electrolyzers, liquefiers, tanker trailers and stationary storage tanks for green hydrogen production projects in North America.
Tesla Inc. (TSLA)
Although green hydrogen may one day become a serious competitor to battery-powered electric vehicles, that development is a ways off.
For now, the battery electric vehicle market is hitting the gas pedal, creating a tailwind for Tesla, which is the largest manufacturer of battery electric vehicles in the world.
“While it is not a pure-play energy company, it is a holistically green company with an unrelenting eye on the future,” says Thomas Brock, a chartered financial analyst and expert financial reviewer for Annuity.org.
In addition to making electric vehicles, Tesla also sells automotive regulatory credits and is involved in solar energy systems and battery storage.
“The diversified revenue streams are what appeal to me — that and Tesla’s nearly 10% earnings-per-share growth projection for the next three to five years,” Brock says.
At $258.87 per share as of Oct. 12 and a trailing price-to-earnings ratio of 72, the stock is trading richly. “So if you invest in Tesla, make sure you have long-term intentions,” Brock says.
First Solar Inc. (FSLR)
One of the consequences of Russia’s invasion of Ukraine has been a heightening of concerns about national energy security.
“We strongly believe the long-term drivers and opportunities remain unchanged for the renewables sector, driven by the transition toward sustainable sources of energy, and energy security and independence,” Cheng says.
The energy independence factor has been particularly felt in Europe because of its historical reliance on Russian natural gas and oil, so renewables companies with a footprint on the Continent stand to benefit.
Over the past decade, solar cell manufacturer First Solar has installed 1,500 megawatts of the company’s modules in more than 400 projects in France, one of Europe’s biggest markets. The company has an office and a recycling center in Germany and an office in Belgium.
Germany, Europe’s biggest market, is seeking proposals for 10 gigawatts of solar manufacturing capacity, and First Solar intends to submit a nonbinding expression of interest, CEO Mark Widmer said in July during the company’s second-quarter earnings conference call. He added that the company’s backlog of contracts expanded since the previous conference call, including with “a large European customer.”
“Most markets across Europe reflect strong demand for photovoltaic (PV) solar energy due to its ability to compete economically with more traditional forms of energy generation and, more recently, as a means to establish greater energy independence,” First Solar said in its most recent annual report.
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7 Best Renewable Energy Stocks to Buy originally appeared on usnews.com
Update 10/13/23: This story was published at an earlier date and has been updated with new information.
