Every 100 seconds, a new solar project is born, or so the Solar Energy Industries Association says. Despite last year’s cratered demand for solar systems, the future of the top solar stocks seems incredibly bright. With a strong start to 2019, solar energy stocks look promising for traders who want to power up their portfolio.
Today, the Invesco Solar ETF, which is comprised of 22 various solar industry companies, is almost 25% up on 2018, when the ETF lost 26% of its value. Several particular stocks show even bigger potential for growth. Do you want to learn their names? Welcome aboard.
What is a solar stock?
What do we really mean when we talk about solar energy stocks? The solar industry is so varied and dynamic – it consists of a number of different businesses, all of which relate to the solar industry. Here are the major categories:
Solar panel producers. These are companies that make solar panels and their constituent parts: solar cells. The majority of solar makers concentrate on the production and distribution of solar panels. Some of them develop large-scale utility projects.
Yieldcos, or independent power producers, operate and develop large-scale utility solar projects. Often affiliated with a utility company or a renewable-energy producer, yieldcos make profit from selling solar power under long-term contracts to utility companies or enterprises with high energy-consumption rates.
Solar installers. These are companies that install and maintain distributed solar systems.
Solar component producers. Usually much smaller and more specialised businesses who sell their products directly to solar panel manufacturers.
Risks and rewards of investing in solar energy
The global population is expanding rapidly, as are electric vehicles. It will require trillions of dollars to add new power capacity. It is expected that cleaner and cheaper renewable energy sources like solar energy will eventually replace the obsolete fossil-fuel and nuclear power plants.
Solar energy is already outperforming fossil fuels. Solar panels continue to improve their efficiency and lower the costs. And this trend is likely to move forward for the years to come. According to Brookfield Renewable Partners, one of the world's leading renewable energy manufacturers, it will take $11 trillion to replace all the nuclear and fossil-fuel facilities with renewable energy around the world. Furthermore, this long-term trend will create fabulous opportunities for investors to add solar energy stocks to their portfolios.
The biggest risk for traders investing in solar power is related to cyclical character of solar energy stock performance in the short term. For example, in 2018, the world's 2 largest solar markets – the US and China – dropped down the expected demand for solar panels due to their policy changes, which inevitably caused a big oversupply and decline in prices.
Top 5 solar energy stocks in 2019
The leading American producer of eco-efficient photovoltaic (PV) solutions, First Solar has been scaling up the production of its Series 6 solar panels, with daily production up by almost 65% compared to October 2018. The company has been producing a total of 0.7 GW modules among its 3 factories in Ohio, Vietnam and Malaysia.
According to some estimates for 2019, First Solar's production is forecasted to range from 5.2 GW to 5.5 GW in total. In general, the company's strong balance sheet, almost sold out production and additional international expansion make FSLR stock an attractive solar investment.
Pattern Energy Group
Though Pattern Energy owns only a limited amount of solar power assets, depending on wind for a greater part of its revenue generation, the company's CEO Mike Garland assured that Pattern Energy will continue to develop beyond wind.
Maintaining an operational capacity of around 3,700 MW, Pattern Energy has shown impressive growth rates in numerous parameters, including revenue, dividends and cash flow. Provided that this trend continues, Pattern Energy stock could be a buy in some quarters for 2019 and beyond.
SolarEdge Technologies is a promising solar energy supplier with multiple avenues for growth. The company provides solar power system installers and solar panel makers with the required components and power management software.
The company enjoys a well-established technology base and large market share. Generating almost $1 billion in sales in 2018, the SolarEdge Technologies may become a profitable solar investment.
Investors could get excited about TerraForm Power’s growth prospects. In 2018, the company acquired Saeta – the Spanish renewable-energy producer – which significantly boosted its results.
TerraForm’s power generation grew by 46% to more than 2,000 GWh, pushing EBITDA up 79% and CAFD up 69% per share. The cash flow supports the current dividend, which tends to grow further alongside the higher demand for renewable energy and solar power all over the world.
The last couple of years have not been kind to solar installers like Vivint Solar. However, when many solar installers in the US shrank following the implementation of tariffs on the majority of imported solar panels, Vivint Solar survived and aggressively took the market share.
Offering some of the lowest installation costs from any other American installers, and gaining more than $800 million in cash-generating long-term value on its books, Vivint Solar is looking forward to long-term success.
In the end
Indeed, 2018 was a tough year for the solar industry. Solar panel makers are still suffering from the massive oversupply caused by reduced global demand. However, 2019 promises to be a good year for stocks on the other side of the solar industry – solar installers and yieldcos – as they try to benefit from relatively low solar-panel prices.
Analysts agree that investing in solar stocks may be risky due to their high volatility and drastic price swings. However, solar power investments could be a good choice in the long run.
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