What’s Driving The Outperformance In Renewable Energy Stocks?

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Trefis
FSLR: First Solar logo
FSLR
First Solar

Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers –  has rallied by about 17% year-to-date, faring better than the broader S&P 500 which remains down by about 14% over the same period. So, why has investor interest in the sector surged at a time when the Fed’s aggressive rate hikes are hurting growth stocks?

Firstly, the Inflation Reduction Act which carries about $370 billion in subsidies and credits for clean energy investment in the United States, was signed into law by President Biden in August. This is seen as the largest-ever investment to fight climate change and this could result in considerable private investments into the renewables space. Moreover, second-quarter earnings from many renewable players such as Enphase Energy (NASDAQ:ENPH), First Solar (NASDAQ:FSLR), and Bloom Energy (NYSE:BE) were stronger than expected, and this has also helped the sector as there has been a rising demand for clean energy products following the disruption in the oil and gas market following Russia’s invasion of Ukraine. There are also increasing uncertainties regarding supplies of natural gas in Europe after Russia has cut off supplies, noting that it would not resume until Western sanctions against the country are lifted.

Within our theme Enphase Energy, a company that is best known for its solar micro-inverters has been the strongest performer, rising by about 68% year-to-date. First Solar, a company that sells solar panels and develops utility-scale PV power plants, has also fared well with its stock rising by 57% year-to-date. On the other side, NextEra Energy, one of the largest U.S. utilities by market cap and the single largest owner of solar generation capacity outside China, has been the weakest performer with its stock down by about 1% year-to-date.

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What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Sep 2022
MTD [1]
2022
YTD [1]
2017-22
Total [2]
 FSLR Return 7% 57% 326%
 S&P 500 Return 4% -14% 84%
 Trefis Multi-Strategy Portfolio 6% -10% 254%

[1] Month-to-date and year-to-date as of 9/13/2022
[2] Cumulative total returns since the end of 2016

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