Solar stocks are a big deal in 2020. We all know about the gutting of the oil sector. Between the drop in demand because of the novel coronavirus and self-inflicted wounds from a brutal price war, oil stocks are hurting.
But something unusual is happening this year. Oil prices have been near record lows. And typically, a big drop in oil prices means solar stocks suffer. The reasoning is sound. If oil is cheap, there’s less pressure for companies and governments to invest in expensive renewable energy. For a recent example of this relationship, look back to 2016 when oil prices dropped to 12-year lows. Solar stocks slid right along with the price of a barrel of crude.
In 2020 oil prices dropped to historic lows. But many solar stocks have actually gained ground. I’ve put together a list of four solar stocks that are positioned to soar.
- Solaredge Technologies Inc (NASDAQ:SEDG)
- Brookfield Renewable Partners (NYSE:BEP)
- Vivint Solar Inc (NYSE:VSLR)
- Enphase Energy, Inc (NASDAQ:ENPH)
This time is different. We might just have seen peak oil demand being passed. And climate change is adding new urgency to the effort to move to green power. That’s great news for alternative energy stocks. If you want to take advantage of the accelerating shift to renewable energy, now is a good time to invest in solar stocks.
Solar Stocks to Buy: SolarEdge Technologies (SEDG)
SolarEdge Technologies is an Israeli company that has steadily expanded its presence in the global solar power industry. It started with power optimizers, which are add-on “smart” modules installed on solar panels to improve the efficiency of the DC power delivered to an inverter. Power optimizers can also shut down solar panels as a safety feature. The company grew its product lineup to include inverters (which convert the DC power from the panels to AC), and combination inverter/battery modules for power storage.
SolarEdge is a dominant player in the power optimizer market. And the position of its components in a typical solar panel installation give it access to valuable data about the system’s efficiency and status. That means the company can make money from monitoring solutions as well.
In the past 12 months, SEDG stock is up 123%. For 2020, it’s 42%. In May, the company released first quarter earnings with record revenue of $431.2 million and EPS of $1.03 (up 59% and 61% respectively, year-over-year). So much for struggling when oil is cheap …
If you need any more reason to consider an investment in SolarEdge, SEDG stock gets an A-rating in my Portfolio Grader.
Brookfield Renewable Partners (BEP)
Brookfield Renewable Partners is a subsidiary of Brookfield Asset Management — a massive investment firm that manages $540 billion in assets. BEP is focused on publicly-traded renewable power platforms. The firm’s portfolio includes nearly 5,300 generating facilities located in North America, South America, Europe, and Asia. They combine for 19,300 megawatts of generating capacity.
BEP acquired the TerraForm (NASDAQ:TERP) companies in 2017 for $1.4 billion, comprising of solar and wind power installations with a total of 3,600 megawatts in generation capacity. In March of this year BEP announced it would acquire the remaining shares of TerraForm Power. That company’s CEO told shareholders:
We believe this merger provides significant value for [TerraForm Power] shareholders, giving them the ability to continue participating in the upside of [TerraForm Power’s] operating assets in developed markets while benefiting from Brookfield Renewable’s enhanced diversification, development capabilities and strong investment-grade balance sheet.
Brookfield Renewable Partners states it has a goal of delivering long-term annualized returns in the range of 12% to 15%. Before the March drop, BEP had posted 85% growth over the past five years, showing Brookfield’s strategy was on-target. Now trading at $48, BEP shares have edged into positive territory for 2020, but they’re still a bargain compared to the $56.95 they hit in February.
Vivint Solar (VSLR)
Vivint Solar is a great option if you want to get in on the expected rush to install homes with solar panels. The company offers solar panel installations aimed at homeowners. It also sells add-on services including battery power storage, electric vehicle chargers, and smart home systems.
The installed capacity of photo voltaic solar panels in the U.S. (many of those on the roofs of homes) is projected to more than double over the next five years.
Vivint Solar is the second-largest residential solar installation company in the country, and leads Tesla Energy. That puts the company in a string position to benefit from solar’s rapidly growing popularity.
Its expansion into additional services also gives VSLR the opportunity to up-sell customers, generating significantly more revenue. In its Q1 earnings report, Vivint drove home the point that as installations increase, its revenue gains are far from one-time:
We believe that the fundamental characteristics of the Vivint Smart Home financial model are compelling. More than 95% of revenue is recurring, which provides long-term visibility and predictability to our business. The majority of new subscribers enter into five-year contracts and reside on the platform for approximately eight years, driving significant lfetime margin dollars.
VSLR stock still hasn’t recovered from a big drop in 2016 (remember that correlation with oil price drops?). Five years ago, shares were trading near $16 before dropping as low as $2.24 in 2016. However, since 2019, VSLR is on the rise again. This solar stock has gained 32% so far in 2020.
Enphase Energy (ENPH)
Finally, an A-rated solar company that recently got the full-post treatment based on its stellar performance over the past two years. And its sunny future.
California’s Enphase Energy is a market leader in solar power inverters. These are critical components needed to convert the DC power generated by a solar panel to AC power that can be fed into the electrical grid. Enphase has sold over 27 million of these.
Enphase is in the top seven companies globally for supplying solar power inverters — the top producer is China’s Huawei. We’ve already seen that solar panel market is projected to see huge growth over the next five years. That means a big spike in business for Enphase.
In addition, existing solar panel installations are seeing demand for retrofitting with new inverters. Enphase’s latest generation are “smart” and offer advanced features like improved power conversion efficiency, system data for monitoring and tracking, and the ability to rapidly shut down a panel if needed. The company has also expanded into lucrative (and in-demand) solar inverter/battery storage packages.
ENPH stock has posted impressive 455% growth over the past five years. Given current and trending developments in the energy market, ENPH is one of the best solar stocks to consider for long-term performance.