5 Pick-and-Shovel Solar Stocks for the Green Energy Gold Rush

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The solar energy boom is the modern equivalent of the California Gold Rush of 1848.

Data from Wood Mackenzie Power & amp; Renewables and the Solar Energy Industries Association note that it took 40 years to reach 1 million solar installations in the United States, but only three more years to reach 2 million installations. And the only forecast for 2021 is 3 million installs.

Green energy exchange-traded funds (ETFs) are on the rise as earnings improve and investors focus on solar stocks. This is demonstrated in the Bellwether Invesco Solar ETF (TAN), which has more than doubled over the past year, although in recent times it has cooled.

With climate change firmly at the top of the Biden administration’s agenda, the setup for solar stocks looks good.

And like the supply companies that took advantage of the gold rush by selling picks and shovels to avid prospectors, solar power offers a similar “pick and shovel” opportunity. The companies that make the components, the batteries, the materials to produce the panels or the software to manage them are riding the coattails of the inexorable march away from fossil fuels and towards solar energy.

Here are five of the best solar stocks that offer a differentiated strategy for profiting from the green energy boom.

SolarEdge Technologies

SolarEdge Technologies

Israel-based SolarEdge Technologies (SEDG, $ 213.34) manufactures inverters, a key micro-grid component that delivers solar power where it’s needed in homes, schools, businesses, campuses and beyond. of the.

SEDG shares have been on a tear for the past two years, but have declined more recently to current levels near $ 210 since hitting an all-time high close to $ 365 in December.

Sentiment has likely moderated on solar stock thanks to a modest 2% increase in revenue in 2020 and a 3% drop in net profit. The company’s earnings release was silent on the precise reason for this, but declining gross and operating margins suggest that as the microgrid market grows, costs also rise, at least at this point in the game.

This shouldn’t be of concern to long-term investors who are interested in solar stocks.

First, SEDG has just over $ 1 billion in cash and marketable securities, with just $ 17 million in debt this year.

Next, cash flow from operations for 2020 was $ 223 million, nearly twice the reported net income, and that easily covered $ 126 million in capital expenditure (CapEx) with a considerable cushion remaining. .

Finally, around 40% of SEDG’s sales come from the U.S. While renewable energy policies have been flawed, a progressive administration coupled with 37 states with renewable energy targets provides a good setup for growth in sales and profits.

SolarEdge Technologies’ consensus estimate for fiscal 2021 is $ 3.82 per share, which, if achieved, would represent a 37% jump from 2020 basic earnings per share (EPS) of 2, 79 USD – a very nice increase.

Enphase Energy

Enphase Energy

Enphase Energy (ENPH, $ 118.12) also manufactures inverter systems. Unlike the “string converters” manufactured by SolarEdge, which basically get power from all the panels in a facility, Enphase sells microinverters, which get power from individual panels as needed or as required. , and can therefore be more efficient.

Although microinverters cost more, their market can grow faster because they can be more responsive to site specific conditions. According to Research and Markets, a market research company, the estimated average annual global growth of microinverters through 2025 is 21% compared to around 15% for string inverters.

For investors who believe in the underlying fundamentals of the solar market and are looking to buy the lows, Enphase could be the right action for you.

Solar stock shares are off their February highs of over $ 200 and have taken another hit after Enphase’s first quarter report. While sales were up 46% year on year, profits fell and ENPH lowered its outlook for the second quarter due to semiconductor shortages and supply chain disruptions.

Enphase can withstand these kinds of storms for now. It’s based on roughly $ 1.5 billion in cash, and while the long-term debt is just over $ 900 million, the current portion is only $ 84 million. Last year, operations generated around $ 216 million in cash, while capital spending was modest at around $ 25 million.

Generac Holdings

Generac Holdings

Generac Holdings (GNRC, $ 305.21) has grown by generously selling standby generators to consumers who have become more responsive and proactive about power outages. The ice storms in Texas and the fires in California are a vivid reminder of the importance of emergency power.

But in 2019, Generac entered the battery storage business with a pair of acquisitions. By purchasing Pika Energy and Neurio Technology, GNRC has positioned itself to develop and distribute its PWRcell and PWRview solar energy products.

Sales are low and not broken down in earnings reports, but Generac touts PWRcell as a high growth area for the company. And what we’re seeing with PWRcell today could be the end of the wedge, a set-up like a lot of investors. Think about Apple (AAPL), where the relatively small services division is expected to be the next big step in the company’s growth and contributed around 19% of total sales in its fiscal second quarter. And at Amazon.com (AMZN), its web services division – accounting for around 10% of total sales – is seen as one of the pillars of the company’s growth.

Generac enters the solar industry with two distinct advantages. First, it is reliably growing in its core generator business, increasing sales and cash flow at an average annual rate of 10% over the past five years, according to Value Line. Notably, last year’s operating cash flow was around $ 487 million, which is enough to fund its foray into the solar business.

Second, unlike Enphase and SolarEdge, which rely primarily on third-party vendors and are relatively young companies, Generac has been in business since 1959, has a global network of 7,000 dealers, and has decades of customer data that it can leverage with. its solar offer. .

Shares were highfliers, up more than 250% since April of last year. Arguably a lot of the excitement is driven by generators, but GNRC could become one of the best solar stocks as its green power business grows.

Daqo New Energy

Daqo New Energy

Daqo New Energy (DQ, $ 72.15) is based in China and produces polysilicon, which is used to make solar panels. At present, China is the world’s largest producer of solar panels and therefore Daqo is well positioned to capitalize on the country’s leadership in this green energy space.

Another driving force behind Daqo stocks is that the demand for polysilicon is increasing, pushing up prices. For example, according to Bernreuter Research, in 2021 alone, prices per kilogram of polysilicon have risen from $ 11 to nearly $ 19, growth that goes directly to Daqo’s sales. Daqo is solidly profitable, and increases in the price of its core product lead to increased gross and operating margins.

Chinese companies have reduced the hegemony of Western polysilicon producers. Daqo, one of the world’s top 10 polysilicon producers, exemplifies this trend with its recently announced production expansion that will add 35,000 metric tonnes of capacity, an increase of approximately 45%.

With the explosion of solar power, Daqo will likely find a home for all this new polysilicon, in what looks like higher prices and better margins. This could make DAQO one of the best solar stocks to have on your radar.

CleanSpark

CleanSpark

Almost nothing in this world works without software, and solar power is no exception. CleanSpark (CLSK, $ 16.23) offers a suite of software solutions that provide end-to-end microgrid modeling, communications, and power management.

CleanSpark is tiny, but its market cap of around $ 550 million suggests some investors think it could be powerful. CLSK is not for the faint of heart, but the fact that it is showing some momentum beyond what has been seen in the larger green energy sector is remarkable. In the first three months of 2021, sales are up more than 120% year over year. And in mid-April, the company saw significant growth in its backlog – up 220% from mid-February.

CleanSpark is not making any money yet, but analysts expect it to make a profit at the end of this quarter. If so, grabbing the solar stock now could be a tenable first step in building a larger long-term position. It should be noted that the second quarter earnings estimate, now 8 cents per share, fell from the 22 cents per share estimated earlier this year, so conviction could be on the decline.

It’s also worth noting that CleanSpark is stepping up its stake in Bitcoin mining activity. Mining revenues did not appear as a campaign item in its last annual report, but it did appear in CLSK’s first quarter results. And in April of this year, the company announced a significant expansion of its Bitcoin mining operations.

Bitcoin mining and renewable energy may be at odds somewhat, but CleanSpark notes that 95% of the energy in its mining operations is carbon-free – an important marker for ESG investors, those focused on environmental governance. , social and corporate, and perhaps a source of purchase or support for solar stock in the future.

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