The global economy is undergoing a significant shift towards renewable energy stocks, along with renewable energy sources.
Concerns about climate change and the depletion of fossil fuels have driven a surge in investment and innovation in clean energy technologies. This trend is attracting a growing number of investors seeking sustainable and potentially profitable investment opportunities.
This guide aims to provide long-term investors with valuable insights into the world of renewable energy stocks. We’ll explore the different types of renewable energy stocks, key drivers of growth in the sector, and essential criteria for selecting promising renewable energy stocks.
Overview of the Renewable Energy Stocks
Renewable energy refers to sources that can be replenished naturally on a human timescale. There are 3 main renewable energy stocks which we will cover, and they are:
Hydropower
Hydropower, also known as hydroelectric energy, captures the energy of moving water to generate electricity. Dams on rivers are a common source, but ocean currents can also be harnessed.
Wind Energy
Wind energy utilizes turbines that convert the kinetic energy of wind into electricity. In 2023, wind power accounted for 10% of the US’s renewable energy production. This number is expected to rise significantly as the country strives for carbon neutrality by 2050.
Wind farms are becoming a familiar sight, highlighting the growing importance of this clean energy source.
Solar Energy
Solar energy harnesses the sun’s light and heat to generate electricity. While photovoltaic panels are the most recognizable technology for capturing solar power, other fascinating methods exist, like artificial photosynthesis and molten salt power plants.
Criteria for Selecting Promising Renewable Energy Stocks
Investing in any sector requires careful analysis, and that’s why it’s really difficult to tell you which are the best stocks to invest in. But when considering renewable energy stocks, here are some key criteria to keep in mind:
- Financial stability and profitability: Look for companies with a solid track record of revenue growth, profitability, and a manageable debt level.
- Technological innovation and competitive advantage: Companies with a strong commitment to research and development (R&D) and proprietary technologies are better positioned for long-term success.
- Market position and growth potential: Evaluate the company’s market share, geographic reach, and potential for future expansion into new markets and technologies.
- Environmental, Social, and Governance (ESG) factors: Sustainable practices, a commitment to social responsibility, and good corporate governance are increasingly important factors for investors.
- Diversification within the renewable energy stocks portfolio: Spreading your investments across different renewable energy stocks can mitigate risk and provide exposure to broader market trends.
Analysis of Top 3 Renewable Energy Stocks
In this section, we will take a look at the top 3 renewable energy stocks at the moment. However, it’s important to remember that this is not financial advice. You should always conduct your own research before making any investment decisions.
1. NextEra Energy
As one of the world’s largest producers of wind and solar energy, NextEra is leading the charge towards a cleaner future.
The company’s commitment is undeniable. Their ambitious “Real Zero” plan aims for complete carbon emission elimination from operations by 2045. This vision translates into a significant expansion of solar and energy storage capabilities.
They’re even pushing boundaries by exploring green hydrogen and renewable natural gas to replace natural gas in power plants.
But NextEra’s dedication isn’t just about the environment; it’s about creating value for investors. Their track record speaks for itself: over 225% total return in the past decade. This impressive performance is fueled by consistent growth.
Since 2013, NextEra has achieved a 10% compound annual growth rate in adjusted earnings per share (EPS). Their commitment to shareholders extends beyond stock price appreciation. NextEra boasts a 30-year streak of consecutive dividend increases, with an annual growth rate of 11% during that period.
Looking ahead, NextEra forecasts continued growth, projecting earnings to rise within their 6% to 8% annual target range through at least 2026. This growth is fueled by their unwavering focus on renewable energy investments.
2. Tesla
Beyond just being an electric car manufacturer, Tesla has become a synonym for sustainable transportation.
Through its subsidiary Tesla Energy (formerly SolarCity), the company is also a leading force in battery manufacturing and solar panel production. These technologies not only power Tesla’s electric cars but also provide clean energy solutions for homes and industrial facilities.
Throughout 2023, Tesla defied skeptics by exceeding analyst expectations for quarterly earnings. This achievement came despite implementing a price-cutting strategy early in the year. While the strategy boosted deliveries, it also put pressure on Tesla’s gross margins.
The positive momentum continued into Q4 2023, with Tesla exceeding Wall Street’s delivery estimates by delivering a strong 483,507 vehicles during the last quarter. This performance comes against a backdrop of growing competition from China’s BYD and concerns about potential softening demand for EVs in Tesla’s established markets.
Despite these challenges, Tesla remains an attractive option for investors seeking exposure to the renewable energy sector. The company’s consistent delivery growth and commitment to innovation position it well for the future of electric vehicles.
3. First Solar
First Solar panels, known for their larger size and efficient energy generation, are ideal for large-scale solar projects. This positions First Solar perfectly to capitalize on the booming demand for renewable energy.
As a top player in the solar panel industry, First Solar is well-positioned to meet this growing demand. They’re actively investing in expanding their production capacity, with the goal of meeting anticipated future needs.
Their strong foresight is evident in the contracts they’ve secured – by the end of 2023, they had already locked in panel sales stretching through the end of the decade, providing significant revenue visibility.
First Solar’s financial strength further bolsters its position for future growth. With one of the most robust balance sheets in the sector, they can make significant investments in new manufacturing capacity without compromising their financial health.
Even with these heavy investments, they’re projected to end 2024 with a healthy net cash position of $900 million to $1.2 billion. This financial flexibility allows them to capitalize on the surging demand for solar panels by continuing to expand their production capabilities.
Their commitment to growth is further underscored by the groundbreaking of a new $1.1 billion manufacturing facility in Louisiana, slated to begin production in 2026.
