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The renewable energy industry saw a resurgence in 2020, as wind and solar power continued to become more economically viable compared to fossil fuels around the world. And it created an opportunity for investors in renewable energy stocks. But navigating the industry can be tricky.
We asked three of our renewable energy experts for stocks they think will be bought in November and Canadian solar (NASDAQ: CSIQ), Clearway Energy (NYSE: CWEN), and TPI Composites (NASDAQ: TPIC) made the top of the list.
Image source: Getty Images.
Solar manufacturing is a buy again
Travis Hoium (Canadian Solar): The solar manufacturing sector has been a terrible industry for investors over the past decade, as manufacturers have experienced oversupply and have struggled to lower prices year after year. This resulted in a number of prominent bankruptcies in the United States, Europe and even China from companies that could not compete. But in recent years the industry has consolidated to the point where there are only a handful of viable competitors and they compete less on price than a few years ago.
One of the biggest beneficiaries is Canadian Solar, one of the largest solar manufacturers in the world. The main business of the company is the manufacture of solar panels, but it also develops large-scale solar projects.
As you can see below, over the past eight years the business has steadily improved. Revenue does not increase much, as price cuts offset increases in manufacturing capacity, but margins increase significantly and the business is now solidly profitable.
CSIQ Revenue Data (TTM) by YCharts
Ten years ago I would have said that finances could change at any time, but I don’t think that is the case today because there are fewer large suppliers and solar power is now competitive with the fossil fuels without subsidies.
The title of Canadian Solar is also attractive because of its value. The shares are currently trading at just nine times trailing earnings and looking at the margin trends above the company, one could continue to grow the bottom line over the next several years. And that value is what pushes Canadian Solar to the top as a renewable energy store that I would buy today.
A dividend opportunity
Howard Smith (Clearway Energy): Clearway Energy owns and operates a portfolio of clean power generation facilities and sells its electricity to electric utilities under long term contracts. Earlier this year, Clearway was a high risk investment. One of its biggest customers, California Utility PG&E, had filed for bankruptcy protection, freezing access to nearly $ 168 million in cash at Clearway.
The company responded by reducing its dividend in early 2019 in order to conserve cash as the PG&E bankruptcy process progressed. After the utility came out of its restructuring and Clearway was able to access its funds, it increased its dividend with a 49% increase for the third quarter of 2020. It also reaffirmed its annual target of annual dividend growth from 5% to 8%.
CWEN Dividend data by YCharts
Although the share price also jumped once the situation at PG&E stabilized, the level of risk declined accordingly. Now, investors have the opportunity to earn a 4.4% return with a company capable of refocusing on growth.
Recently released results from Clearway for the third quarter showed the company remains on track. He increased the quarterly dividend an additional 1.8% and said he expected the increase in 2021 to be at the high end of his target range.
Clearway President and CEO Christopher Sotos also highlighted a new investment opportunity in Mesquite Star, a 1.6 gigawatt revolving project partnership, saying it “will lead to sustained dividend growth.” The company has declared cash available for distribution (CAFD) which supports its dividend growth target at a payout ratio of 80% to 85%.
Clearway also announced $ 108 million in new growth investments made upon the release of third quarter results, bringing its total investments for 2020 to $ 450 million. The results support an investment case for those looking for a dividend above 4%. The underlying growth in the renewable energy sector should support future expected increases in payments to shareholders.
With stocks down about 8% since the first week of October, Clearway looks like a good renewable energy dividend stock to buy for November.
This winner in the wind should keep winning
Jason hall (TPI Composites): The shares of the manufacturer under contract for the wind industry have climbed 121% this year, as TPI Composites benefited from the strong interest in renewable energy stocks. But the big stock gains aren’t just due to investor interest in all things alternative energy – they’re also the product of a company that is doing incredibly well.
TPI just released its third quarter results, and the results have been amazing:
- Turnover up 24%
- Operating profit up 141% to $ 29 million
- Net income of $ 42 million compared to a loss of $ 4.6 million for the same period last year
- Free cash flow of $ 49.5 million
Management also announced a forecast of revenue of $ 1.65 billion for the full year at the midpoint, which would be 15% higher than last year’s result, and forecasts of Adjusted EBITDA. $ 95 million at the midpoint.
Simply put, everything that makes TPI Composite an attractive investment for the future of wind energy is being played out. Demand is strong and rising and costs are falling, making wind generation competitive with any other source of electricity. TPI plays a vital role in helping turbine manufacturers compete in many markets, and this should continue to bear fruit for investors.
Renewable energy is the future of energy
These three companies are all benefiting from the energy industry’s trend towards renewables. It is now less expensive than new coal, natural gas or nuclear power plants and this economic reality will lead to decades of growth for renewable energy assets. Canadian Solar, Clearway Energy and TPI Composites should therefore have a long growth path ahead.
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