Even Big Oil Is Getting Serious About Renewables. Which Clean Energy Stocks Should You Pick?

by Trefis Team
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Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – has underperformed year-to-date, declining by about -15% versus a 13% return on the S&P 500, as investors have rotated out of higher-growth stocks to more cyclical and value stocks to play the re-opening of the economy following Covid-19. However, this might be a good opportunity to invest in the sector. The increasing urgency to fight climate change should result in more favorable regulations, with companies also looking to increase their renewable footprint. For example, even Big Oil doesn’t want to be left out of the clean energy race. BP (NYSE: BP) intends to invest as much as $3 to $4 billion annually by 2025 building out an integrated portfolio of low carbon technologies, including renewables, bioenergy, and EV charging infrastructure. Even Exxon Mobil (NYSE:XOM) which has until recently been somewhat reluctant to double down on solar and wind energy, is also likely to get more serious about its low-carbon investments after activist fund Engine No. 1 – which has been pushing it to invest more in renewables and shift away from fossil fuel – won three board seats at Exxon’s recent annual shareholder meeting.

Within our theme, Albemarle (ALB) stock is has been the strongest performer this year, rising by 18% year-to-date. The company is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems. On the other side, Sunrun (RUN) – a company that designs, develops, installs, and maintains residential solar energy systems – has been the worst performer, with its stock down by about 39% year-to-date.

[5/12/2021] Buy The Dip In Renewable Energy Stocks? 

Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – has significantly outperformed the market, returning about 159% since the end of 2019, compared to a return of 29% for the S&P 500. However, the theme has underperformed year-to-date, declining by about 19% versus an 11% return on the S&P 500, as investors have rotated out of high-growth names to more cyclical stocks to play the near-term recovery from Covid-19. That said, we think the renewable energy sector is likely to grow considerably over the coming years, driven by an increasing urgency to fight climate change and a more favorable regulatory environment in the United States. The U.S. has pledged to cut its greenhouse gas emissions in half by 2030, based on 2005 levels, while targeting net-zero emissions economy-wide by no later than 2050. Many other countries have also set similar long-term targets and this should result in a seismic shift in the $7 trillion global energy market, driving demand for renewable energy technologies. Below is a bit more about some of the companies in our theme and how they have been faring.

Albemarle (ALB) is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems. The stock is up 7.5% year-to-date.

NextEra Energy (NEE) the largest U.S. utility by market cap, is also the single largest owner of solar generation capacity outside China. The company is also betting big on battery storage, with plans to build nearly 700 megawatts of storage projects in California before the end of 2022. The stock is down by -2.4% year-to-date.

Bloom Energy (BE) sells solid oxide fuel cell generators called Bloom Energy Servers that use natural gas or biogas as fuel via an electrochemical process without combustion. The company also develops hydrogen fuel cells – that use only hydrogen gas as fuel. The stock is down by -27% year-to-date.

First Solar (FSLR) is the largest U.S.-based solar panel manufacturer. The company’s strong balance sheet and its differentiated thin-film solar panel technology, which finds application in utility-scale projects – should give it an edge as the market continues to expand. The stock is down by -28% year-to-date.

Enphase Energy (ENPH) primarily produces components such as power inverters and control systems for solar installations. These inverters convert the direct current produced by solar panels into the alternating current used by the grid and control the solar power system. The stock is down by -30% this year.

Sunrun (RUN) is a company that designs, develops, installs, and maintains residential solar energy systems in the U.S. The company also offers battery storage systems. With the costs of rooftop solar declining and demand from residential customers rising,  Sunrun has steadily grown revenues in recent years. That said, the stock’s high valuation has meant that it has corrected by almost -36% year-to-date.

Looking for a balanced portfolio to invest in? Here’s a high-quality portfolio to beat the market, with over 150% return since 2016, versus 85% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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