The current year has been a start-to-finish nightmare. Some pundits saw it coming thanks mainly to escalating trade tensions, yet current events have surpassed their expectations and blindsided everybody. After all, virtually nobody foretold a global pandemic that would devastate the global economy, and few predicted the snafu that would ensue after a hotly contested U.S. presidential election. The recent positive development of a new Covid-19 vaccine has been dampened by the growing specter of a sitting president refusing to concede and handover power.
Nevertheless, Wall Street and investors see Joe Biden prevailing and becoming the 46th president of the United States, something that would be a huge positive for certain sectors, particularly clean energy.
Here are 20 Buy and Sell recommendations in the renewables sector by Goldman Sachs.
Buy: Companies that sell clean energy/ clean technologies
The clean energy sector, in general, has been on a tear, with the NASDAQ Clean Edge Green Energy Index Fund (QCLN) boasting an industry-topping 122.2% gain in the year-to-date. The solar sector has emerged as the crème de la crème of the clean energy universe, with a sizzling 143% return.
Goldman Sachs says solar stocks still have room to run despite the sharp climb, with the sell-side analyst rating five solar stocks a Buy in its newest Conviction List.
#1. Array Technologies New Mexico-based Array Technologies (NASDAQ:ARRY) went public about a month ago and managed to charge straight out of the gate, surging 79% in its first three trading days to give the maker of solar-powered equipment a market valuation of $5 billion. However, the shares have pulled back a bit mainly on valuation concerns, and Array is now valued at $4.78B.
Array Technologies designs and manufactures solar ground monitoring systems. Don't be fooled by its recent IPO--Array is hardly a newcomer to the solar industry, having been founded in 1989 by Ron Corio, a pioneer of solar trackers. Today, Array is recognized as the world's second-largest supplier of solar tracking systems, a rapidly growing market estimated at ~$3 billion in 2020. Array had a 17% slice of that market, trailing only market leader Nextracker with a 30% share.
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Array's first earnings since going public have been disappointing after the company reported Q3 revenue of $139.46M (-29.5% Y/Y) and Q3 GAAP EPS of -$0.06, with the company attributing the revenue decline to changes in seasonal order patterns.
Goldman has a $50 price target on ARRY (current price $37.62), saying the company "appears poised to leverage its technology leadership in maintaining stable pricing and margins against this backdrop of solid volume growth for trackers."
Cowen has PT of $45, Barclays $46, while UBS has $43.
#2. FirstSolar
First Solar (NASDAQ:FSLR), America's largest solar manufacturer in America and the third-largest in the world with revenue (TTM) of $3.1 billion, manufactures solar panels, photovoltaic power plants, and related services including construction, maintenance, and recycling of solar products. The Tempe, Arizona-based company employs thin-film semiconductor technology to achieve enhanced efficiency and sustainability in its solar modules.
FirstSolar has been removed from Goldman Sachs; Conviction List mainly due to lower exposure to fast-growing solar markets in China, India, and Asia (75% of the company's orders come from the U.S.). Others like Raymond James have moved to the sidelines on fears that First Solar might come under pressure if Biden repeals Section 201 tariffs that Trump placed on imported solar modules from China, while Morgan Stanley and J.P. Morgan have downgraded the stock
after its recent run-up to multiyear highs (FSLR is up 45.5% YTD).
Nevertheless, FSLR remains a top player in the industry and fundamentally sound. During the latest earnings, the company reported Q3 revenue of $928M (+69.7% Y/Y) and GAAP EPS of $1.45, both metrics easily beating Wall Street expectations.
More importantly, FSLR has a stronger balance sheet than most of its peers, with an impressive current ratio of 3.66 compared to 1.04 by JinkoSolar (NYSE:JKS), 1.14 by Canadian Solar (NASDAQ:CSIQ), and 0.47 for Daqo New Energy (NYSE:DQ).
#3. Sunnova Energy
Sunnova Energy International Inc. (NYSE:NOVA) has been on a tear, returning 190% YTD but has become the newest addition to Goldman'sConviction List. Sunnova Energy is a provider of residential solar and energy storage services in the United States, including maintenance, repairs and replacements, monitoring, on-site power optimization, equipment upgrades, and diagnostics services. NOVA serves approximately 80,000 customers thanks to its fleet of residential solar energy systems with a generation capacity of ~572 megawatts.
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Goldman has raised NOVA's price target from $38 to $44 (current price $32.38), well above the Wall Street consensus of $37.50, citing the company's potential for high growth.
#4. Companies that produce, transport, or refine fossil fuels
Goldman Sachs says that a successful vaccine could trigger a rebound in oil and jet-fuel demand, leading to gains for companies tethered to rising oil prices and fuel demand. Further, GS has observed that a dip in U.S. shale-oil production and a fresh stimulus package under Biden are likely to act as positive catalysts for oil prices.
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The banker has picked the following companies to play these outcomes:
- Halliburton Co (NYSE:HAL)
- Suncor Energy (TSX:SU)
- EOG Resources (NYSE:EOG)
- Plains All American Pipeline (NYSE:PAA)
- Schlumberger NV (NYSE:SLB)
- Hess Corp. (NYSE:HES)
- Canadian Natural Resources (TSX:CNQ)
- EQTCorp. (NYSE:EQT)
- MPLX LP (NYSE:MPLX)
- TC Energy (TSX:TRP)
- Phillips 66 (NYSE:PSX)
- Marathon Petroleum (NYSE:MPC)
- Sempra Energy (NYSE:SRE)
- Cheniere Energy (NYSEMKT:LNG)
Sell:
Overvalued/refining companies
Meanwhile, GS says a group of energy companies are likely to underperform the broader market either because they are priced too high or are likely to be negatively impacted by an oversupply of refining capacity.
These include:
- Imperial Oil (TSX:IMO)
- Range Resources Corp. (NYSE:RRC)
- Marathon Oil (NYSE:MRO)
- Continental Resources (NYSE:CLR)
- JK Solar (NYSE:JKS)
- Maxeon Solar Technologies (NASDAQ:MAXN)
- Valero Energy (NYSE:VLO)
- CVR Energy (NYSE:CVI)
By Alex Kimani for Oilprice.com
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