The shift from high-carbon fuels to clean energy is in full swing, and solar stocks are enjoying their moment in the sun. Solar ETF, Solar Invesco ETF (NYSEARCA:TAN), has been surging with blue wave prospects as Wall Street grows more bullish on the odds of a decisive Democratic victory that could provide a big push towards renewable energy.
TAN has gained 83.3% over the past 90 days and a sizzling 146.2% as new polls show Joe Biden has extended his lead over President Trump to 16 points--the widest so far for this election cycle. Biden's lead is the best of any challenger since 1936, the year when the first scientific polls were taken in a presidential race.
Biden has announced aggressive plans to ramp up renewable energy production.
Indeed, Biden has proposed a staggering $1.7 trillion in federal spending over the next decade to achieve this goal, with the private sector expected to chip in with the balance. Biden also says the taxpayer costs can be recovered by repealing the generous tax bonanza that Trump granted U.S. fossil fuels.
JPMorgan has said that a Democratic sweep, aka a blue wave, is a near-term catalyst for the sector.
Source: CNN Money
Here are 5 red-hot solar stocks that could still power higher if Biden ascends into the Oval Office.
#1 Enphase Energy Inc.
YTD Returns: 317.8%
3-Month Returns: 97.0%
Enphase Energy Inc. (NASDAQ:ENPH) is a Fremont, California-based company that designs and manufactures software-driven home energy solutions used in solar generation, home energy storage, and web-based monitoring and control. ENPH reported a large Q2 GAAP loss with GAAP EPS clocking in at -$0.38, a good $0.44 below Wall Street's consensus. The loss was mainly due to a $59.7M charge related to fair value changes related to convertible notes issued in March 2020. The company reported Q2 revenue of $125.53M (-6.4% Y/Y) after shipping approximately 1.1 million microinverters while also managing to drive channel inventory back to healthy levels with management attributing the revenue contraction to a difficult macro environment due to Covid-19.
Despite the disappointing loss, Q2 adjusted gross margin improved by a good 550 basis points to 39.6% vs. 34.1% in the year-ago quarter.
Enphase issued upside guidance for Q3, seeing revenues of $160M-$175M vs. $154M analyst consensus estimate, with an adjusted gross margin of 37%-40%.
The stock has been climbing again after the company unveiled a strategic partnership with solar module manufacturer Sonnenstromfabrik to develop the first high-efficiency Enphase Energized AC module for the European residential solar market.
Although ENPH has enjoyed a big runup, Needham still rates it a buy due to the upcoming launches of several new products during the second half of the year.
#2 SolarEdge Technologies Inc.
YTD Returns: 221.5%
3-Month Returns: 91.7%
SolarEdge Technologies Inc. (NASDAQ:SEDG) is an Israel-based provider of power optimizers, solar inverters, and monitoring systems for solar PV systems. The company has demonstrated strong revenue momentum, managing to grow the top line for seven straight quarters.
Back in June, SEDG received two notable downgrades, one from Canaccord analysts who downgraded the shares to Hold from Buy with a $128 price target while Goldman Sachs has cut it to Sell with a $126 price target saying the company's U.S. residential market share has peaked. However, the company has been defying bearish expectations after easily topping Wall Street estimates during its latest earnings call. SEDG reported Q2 non-GAAP EPS of $0.97, $0.26 higher than the consensus; GAAP EPS of $0.70 beats by $0.22 while revenue of $331.85M (+2.1% Y/Y) beat by $12.3M. The company reported that it shipped 3.5M of its solar power optimizers in Q2, down from 5M in Q1. Q2 gross margin was 32.4% vs. guidance of 30%-32%, while gross margin from the sale of solar products clocked in at 33.8% vs. guidance of 32%-34%.
But most encouragingly, the company reported that sales and installations in Europe have returned, with sales in some countries even exceeding pre-COVID-19 rates. The company also said that it's beginning to see signs of recovery in the U.S.
- Riley has initiated coverage of SolarEdge with a buy rating saying the company is, "best positioned player to address multiple end markets and geographies with improved functionality and competitive pricing on the residential side and with new products to address larger projects in the commercial and utility-scale segments."
#3 Sunrun Inc.
YTD Returns: 417.2%
3-Month Returns: 147.3%
Sunrun Inc. is a United States-based provider of residential solar electricity, headquartered in San Francisco, California.
Solar stocks are sizzling hot; however, Sunrun Inc. (NASDAQ:RUN) has taken this to a whole new level after surging 770% since its March low. The epic run has continued despite the company posting a bigger-than-expected Q2 loss with revenue of $181.29M (-11.4% Y/Y) missing by $5.72M while Q2 GAAP EPS of -$0.11 missed by $0.16 after revenues from solar energy systems and products slumped by a third to $75M. Meanwhile, megawatts deployed fell 24% Y/Y to its lowest quarterly total since 2018 after only 78 MW was deployed compared to 103 MW a year ago.
But investors have chosen to be more forward-looking after the company revealed that its order volumes have increased significantly and expect to grow MW deployed in Q3 by more than 20% Q/Q. The company has also forecast that unlevered NPV to improve to above $8,000 per leased customer in Q4. Unlevered NPV fell to ~$3,800 per leased customer during the second quarter.
Two weeks ago, Bank of America raised its RUN price target to a Street high $79.
On the other hand, Goldman Sachs has downgraded RUN to Neutral from Buy with a $61 price target (current price $71.43), with analyst Brian Lee saying the company remains "well positioned within the solar space," and if its acquisition of Vivint Solar closes, it would "further cement its status as a bellwether play on secular resi solar growth" in the United States. Lee, however, says he is looking for better visibility or a better entry point to turn positive on the stock again.
#4 NextEra Energy Inc.
YTD Returns: 24.8%
3-Month Returns: 18.1%
NextEra Energy Inc. (NYSE:NEE) is a Florida-based clean energy company and America's largest electric utility holding company by market cap. NEE is the world's largest producer of wind and solar energy, with 45,900 megawatts of generating capacity. The company owns eight subsidiaries, with the largest, NextEra Energy Services, supplying 5 million homes in Florida with electricity.
It's worth noting that NextEra has officially become America's largest energy company after surpassing ExxonMobil (NYSE:XOM) with a market cap of $148.32B vs. $146.89B by Exxon.
During the last earnings call, NextEra's management reiterated its 30x30 goal to install more than 30 million solar panels, or roughly 10,000 megawatts of incremental solar capacity, in Florida by 2030 through one of its subsidiaries, Florida Power & Light (FPL).
Another of NEE's subsidiaries, NextEra Energy Partners LP(NYSE: NEP), is publicly listed and pays 4% dividend--one of the highest in the industry. NEP acquires, manages, and owns contracted clean energy projects with a preference for businesses with stable, long-term cash flows. NextEra Energy Partners owns interests in dozens of wind and solar projects in the United States, as well as natural gas infrastructure assets in Texas. These contracted projects use leading-edge technology to generate energy from the wind and the sun. The company's management is shooting for 12-15% dividend growth through 2024, making this an ideal stock for income investors.
#5 Invesco Solar ETF
Expense Ratio: 0.71%
YTD Returns: 146%
3 Month Returns: 83.3%
Investors who need to diversify their solar portfolios can buy solar ETFs instead of buying individual stocks.
Invesco Solar ETF (TAN) is an exchange-traded fund that's solely dedicated to companies in the solar sector. The ETF tracks the MAC Global Solar Energy Index, which itself tracks companies involved in a wide range of solar technologies, provision of raw materials, manufacturing, installers, solar plant operations, etc. Currently, TAN is the only ETF strictly devoted to solar energy.
TAN's top 5 holdings include:
- SolarEdge Technologies--7.83%
- Xinyi Solar Holdings Ltd--6.68%
- First Solar--6.64%
- Enphase Energy Inc.--6.59%
- Sunrun Inc.--6.33%
By Alex Kimani for Oilprice.com
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