Amid the coronavirus-shaped “new normal,” we have been overlooking major trends. One such prominent trend is driven by the shift to renewable energy across the globe.
Moreover, the rapid climatic change has played a major role in spurring the green revolution in the energy sector. Increasing number of energy projects, technological advancement and low-cost energy storage facilities for renewable energy is posing tough competition to even low-priced fossil fuels.
Why Clean Energy Makes Financial Sense
Clean energy stocks have been a big deal in 2020 so far, thanks to the disappointing scenario in the oil sector. Oil stocks were already grappling with the brutal price war, when demand for the commodity dropped because of the novel coronavirus to record lows.
In a study conducted by Imperial’s Center for Climate Finance & Investment and the International Energy Agency (“IEA”), it has been found that investment in clean energy has made more financial sense over time. This is because the drastic change in market fundamentals, especially the coronavirus-led downturn, is impacting fossil fuels more in comparison to renewables.
Clean energy stocks have been outperforming fossil fuels in not only the U.S. market but also globally. However, despite the growth, investment in clean energy is at a record low which fails to make the world’s energy system sustainable.
Electronic Vehicle Adoption a Tailwind
Mass adoption of electronic vehicles (EV) will be a huge tailwind for the clean energy adaptation, especially solar electricity. In fact, Tesla, Inc. (TSLA – Free Report) has been one of the main drivers of the uptrend.
IEA believes growth of charging infrastructure has been impressive over the last few years, however dedicated EV charge points are still extremely crucial for accelerating EV adoption. Demand for public fast-charging stations is constantly growing, which is not only essential for long-distance travel but also provides a seamless EV experience.
Per a ResearchAndMarkets.com report, the Global Electric Vehicle Charging Infrastructure market was worth $9.01 billion in 2018 and is expected to reach $96.95 billion by 2027, at a CAGR of 30.2%.
Mergers Boosting the Space
On Jul 6, Sunrun Inc. (RUN – Free Report) agreed to acquire Vivint Solar, Inc. (VSLR – Free Report) in a $3.2 billion all-stock transaction. The acquisition is expected to be completed in the fourth quarter of 2020 and Sunrun expects to deliver cost synergies of $90 million on an annual basis.
Sunrun is one of the largest residential solar companies in the United States and Vivint Solar is one of the world’s largest providers of solar equipment. Once approved, this newly-formed company will cater to 500,000 customers.
Sunrun overtook Tesla, becoming the United Nation’s leading residential solar provider in 2018. Sunrun has so far focused on financing and installing solar panels and batteries but with Vivint Solar’s high-quality sales channels, it will be able to reach more households. There is massive growth potential for residential solar products as only 3% of American homes are currently solar-equipped.
5 Stocks to Look Out For
So far this year, the iShares Global Clean Energy ETF (ICLN) and the Invesco WilderHill Clean Energy ETF (PBW) have added 13.4% and 23.2% against the S&P 500 and Energy Select Sector SPDR Fund’s decline of 1.6% and 37.8%, respectively. Solar stocks have been a big deal in 2020 so far as the Invesco Solar ETF (TAN) has surged 27.4% year to date.
Given the positives, we have shortlisted five stocks that can make the most of this boom.
Canadian Solar Inc. (CSIQ – Free Report) designs, develops, manufactures and sells solar ingots, wafers, cells, modules, and other solar power products. The company’s expected earnings growth rate for the current year is 22.8% compared with the Zacks Solar industry’s estimated earnings growth of 1.9%.
The Zacks Consensus Estimate for its current-year earnings has climbed nearly 30% over the past 60 days. Canadian Solar sports a Zacks Rank #1 (Strong Buy).
Sunrun engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems. The company belongs to the Zacks Solar industry and has an expected earnings growth rate of more than 100% for the current quarter. The Zacks Consensus Estimate for its next-year earnings has climbed 5% over the past 60 days. Sunrun carries a Zacks Rank #2 (Buy).
NextEra Energy, Inc. (NEE – Free Report) generates electricity through wind, solar, nuclear, and fossil fuel. The company belongs to the Zacks Utility – Electric Power industry and has an expected earnings growth rate of 8.7% for the current year. The Zacks Consensus Estimate for its current-year earnings has climbed 0.4% over the past 60 days. NextEra Energy carries a Zacks Rank #2.
Tesla offers solar tiles, charging stations and batteries for EVs and households. The company’s expected earnings growth rate for the current year is more than 100% against the Zacks Automotive – Domestic industry’s projected earnings decline of 38.8%. The Zacks Consensus Estimate for its current-year earnings has moved 2.3% up over the past 90 days. Tesla carries a Zacks Rank #3 (Hold).
Renewable Energy Group, Inc. (REGI – Free Report) utilizes an integrated production, distribution, and logistics system to convert natural fats, oils, and greases into advanced biofuels. The company’s expected earnings growth rate for the current quarter is 76.8% against the Zacks Biofuels industry’s estimated earnings decline of 55.8%. The Zacks Consensus Estimate for its current-year earnings has climbed 22.9% over the past 60 days. Renewable Energy Group carries a Zacks Rank #3.
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