9 Ways To Invest In Alternative Energy

Although a Biden administration would be more supportive of alternative energy, the long-term prospects for renewables remain strong regardless of the political winds in Washington. Several contributors to MoneyShow.com highlight their favorite investments in the sector.

Roger Conrad, Conrad’s Utility Investor

Want to invest in transforming developments like renewable energy and electric vehicle adoption? You could roll the dice and bet Tesla (TSLA) adds to gains that once approached 500 percent year-to-date. Or you could jump on select utilities that offer compelling yields and far more reliable growth.

More than two-thirds of new power generation capacity installed worldwide this year was wind and solar. And in the US, most was either long-term contracted or entered utilities’ regulated rate base. In fact, all of the world’s leading developers of renewable energy now are.

So what electric utilities feature the most attractive energy technology adoption opportunities now? The most attractively priced are Edison International (EIX) and Duke Energy (DUK), which trade at just 11.8 times and 16 times expected 2020 earnings respectively.

Edison is cheap because of understandable concern about the durability of California’s new utility wildfire insurance in a season of record heat. But that risk is more than offset by the low price, which in no way reflects the massive rate base opportunity this company has in its power grid.

The utility’s most recent earnings news was actually an increase in the lower-end of its 2020 guidance range, which at the mid-point now covers the payout by nearly 2-to-1.

You could speculate on which car company will sell the most EVs. Or you could lock in growth from EV adoption with Edison International.

Last month, the California utility won regulators’ approval for the largest build of EV charging stations and energy storage in US history. And while Tesla sells for 17 times annual sales that shrank -5 percent this year, Edison sells for just 11.2 times earnings and pays a yield of nearly 5 percent.

As for Duke, there’s uncertainty about how much North Carolina regulators will approve of its planned investment on power grid improvement and coal ash cleanup.

But this company has more than enough balance sheet strength and diverse revenue streams to handle the worst case scenario investors appear to be pricing in. And arguably no US utility has a bigger opportunity to rate base solar. Buy up to $90.

As for companies combining contracted renewables with regulated utilities, the best buys are Algonquin Power and Utilities (AQN) for the most conservative investors, and AES Corp. (AES) for everyone else.

AES owns one of the California natural gas power plants that won an extension to operate to 2023. But the real appeal is an unrivaled global pipeline of new wind and solar generation along with energy storage that’s expected to grow earnings and free cash by at least an upper single digit rate the next few years.

The utility also earns an investment grade rating from S&P by the end of 2020. AES shares are now up nearly 30 percent since July, but at just 12 times expected 2020 earnings and getting stronger every day, it’s still a buy up to 22.

As for Algonquin, new management looks set to continue the roughly two-thirds utility, one-third contracted renewables earnings and growth strategy.

The latest move on the unregulated side is a co-development deal to power Chevron (CVX) operations with wind and solar, with an initial target of 500 megawatts. That’s an exceptionally low risk deal with the super major oil the only counterparty. Buy at $14 or lower.

Mike Cintolo, Cabot Top Ten Trader

IBISWorld reported that solar industry revenue in the U.S. grew 36% last year (to $10 billion) and that number is expected to more than double to $23 billion by 2025. Moreover, industry consolidation is speeding up, with the top five module manufacturers expected to ship 65% to 70% of total product this year.

All of that is boosting the fortunes of JinkoSolar Holding (JKS), which, unbeknownst to most investors, is the largest solar panel producer in the world. In its second quarter, the company posted EPS of $1.20 and revenues of $1.2 billion, trampling estimates and up solidly from a year ago.

And its global business is booming, with a recent agreement to supply bifacial modules — which produce solar energy from both sides of the panel and generate 40% more power than current mainstream utility products — in Chile and in Vietnam.

JinkoSolar has been highly profitable for years, but the stock has been a nothing burger, bobbing and weaving for a long time.

But recent trading looks decisive — after a multi-month rally toward multi-year highs, JKS went ballistic on enormous volume both before and after earnings. Yes, it’s extended and could shake out a bit, but it’s unlikely we’ll see a huge retreat given the blastoff.

SolarEdge Technologies (SEDG) aims to disrupt the entire electricity grid along with traditional power generation. This company offers power optimizers, solar inverters and cloud-based monitoring systems that increase energy output.

Its single phase inverters (which convert DC power generated by solar panels into AC power used in homes and businesses) dramatically reduce heavy cooling elements, resulting in a smaller and lighter unit for simplified shipping and storing, not to mention easy one-person installation.

The firm also pairs its inverters with DC power optimizers, creating “smart” modules which maximize power generation, providing a significant cost savings over most microinverter systems. Its innovations have allowed it to capture an impressive 61% of the U.S. inverter market last year (up from just 5% in 2013!).

The firm’s rapid growth has been accompanied by a doubling of shipments in the last two years, along with gross margins north of 30%. With a combined global market share of 20%, SolarEdge has plenty of room for future expansion. It’s a great story.

Technically, SolarEdge was halved during the March panic, but the post-bottom comeback has been nothing short of amazing. The stock has zoomed to new highs on many days of big volume. We think any pullback will offer a solid entry.

Genia Turanova, Unlimited Income

For more than a decade, NextEra Energy (NEE) has been riding a clean energy trend. Its FPL division serves the state of Florida and is the largest regulated electric utility in the country. But the company’s alternative energy segment is its fastest-growing business.

It’s responsible for just over 29% of the company’s total revenue. But it’s been outgrowing the FLP unit by 4 to 1. In fact, NextEra Energy Resources is now the world’s largest generator of renewable energy from the wind and sun. And it’s also becoming a world leader in battery storage capacity. 

Over the past 15 years, the company raised its quarterly dividend from $0.355 to $1.40 per share. That’s a nearly 300% increase! Plus, NextEra’s payout ratio of 73% means the company could easily continue paying its current dividend even if its growth slows… or (more likely) raise its dividend in the future.

I expect dividend stocks in general, and utilities in particular, to benefit from historically low interest rates. Businesses with strong fundamentals and solid balance sheets — like NEE — will especially benefit from better financing and refinancing conditions.

In my view, compared to the rest of the market, NextEra is very attractive today, and its valuation premium is justified, given its growth record, future potential, and attractive yield.  

It was reported that NextEra recently approached Duke Energy (DUK), a North Carolina-based peer, with a takeover offer. Duke that was declined. But it’s also been reported that the firm hasn’t given up just yet. If NextEra does acquire Duke Energy, it would be the largest utility deal ever.

The combined company would see 7.7 million of DUK’s electricity customers added to NEE’s 5 million — a truly stunning size for a single utility. This would provide a boost to NextEra’s growth and dividend potential (although it will likely impact its share price negatively in a near term).

Lastly, NextEra has announced a 4:1 share split. Each shareholder on record by October 19, 2020 will receive three additional shares of common stock for each then-held share, to be distributed on October 26, according to NEE. Trading on a split-adjusted basis will then start on October 27.

Timothy Lutts, Cabot Stock of the Week

If you’re looking to make big profits in the energy sector, renewable energy stocks are the best choice. Here are 2 aggressive ways to play the sector.

Plug Power (PLUG) is a stock I’ve known since 2000, when it was one of the tech stocks that flew to giddy heights in the final phase of the dot-com bubble — and then crash-landed. Basically, it was ahead of its time.

The stock had another strong run in 2013 — but that too was followed by years of retrenching, and now here we are again, with PLUG strong technically and, hopefully, strong financially as well.

To be clear, Plug Power is not a dot-com stock; its technology is based on fuel cells, which use hydrogen today to generate electricity in the harshest off-grid environments, which power electric industrial vehicles like forklifts, and which will soon be powering on-road vehicles as well — as the hydrogen market develops.

By the end of 2020, the firm expects to have shipped 40,000 fuel cells, to have more than 100 fueling stations, and to be through-putting more than 40 tons of hydrogen per day.

Financially, the company has not yet turned profitable, and there are no profits visible in the year ahead, but 2019 saw revenues of $230 million, up 28% from the year before and 2020 should see revenues of $335 million, up 46% from last year. As for the stock, it’s hot, hitting new highs. Given its history, there’s reason to be leery of PLUG, but I wouldn’t argue with the stock today.

Bloom Energy (BE) is a fuel cell stocks. These cells generate electricity from natural gas, biogas or hydrogen to provide highly reliable on-site power to liberate businesses (like Walmart, Ikea, Oracle and eBay) from unreliable electric grids.

Bloom’s solid oxide fuel cells are designed as server modules, which are linked together to create a power system that’s as large or small as the customer desires.

At present electricity from such a system is still more expensive than grid power; reliability and low emissions are the attractions. But within the next decade, management expects price parity. And before then, the marine market may take off.

In late June, management disclosed a partnership with Samsung Heavy Industries, which is the world’s third-biggest shipbuilder, to provide power plants for ships (which would help comply with the International Maritime Organization’s mandate to meet emissions reduction targets by 2050).

Revenues in 2019 were $930 million, up 26% from the year before, and are expected to grow to $943 million this year. Earnings are not in sight yet, but the stock has been gaining strength and just recently broke out to a new high so it can be bought here, too.