All Aboard the Stock-Market Solar Coaster
Solar stocks are sizzling—quite an accomplishment for the simplest and most mature of the green-energy technologies. Finding companies that could keep shining might require looking in less obvious places.
The MAC Global Solar Energy Index has generated a 233% return including dividends for dollar investors during the past year. That is well ahead of returns from wind-turbine makers
and Siemens Gamesa, nevermind the S&P 500’s 15%.
As public and political support for green power has broadened, markets have come to expect a decadeslong renewables rollout. It is hard to see any catalyst for a change in sentiment, says
Sam Arie,
a veteran utilities analyst at UBS. Solar panels can be the cheapest way to generate electricity in many parts of the world. “In some cases it is even cheaper to build a new solar farm than run existing coal plants,” says
Alex Monk,
a portfolio manager at asset manager
The catch is that the shift to renewables doesn’t guarantee shareholder returns. To justify high valuations, investors need to ensure companies have a defensible business as well as growth prospects.
Solar investors have already experienced at least two stomach-churning cycles. A key lesson has been that making panels themselves is a low-margin, hypercompetitive market best avoided. But other parts of the value chain offer better prospects.
For example,
and
make power inverters, which convert a solar panel’s power to alternating current and adjust performance to maximize output. Their Nasdaq-listed shares have returned 179% and 444% respectively during the past year and now trade for 72 and 93 times forward earnings. That is a lot of growth priced in. However, the technologies are patent-protected and could also be central to managing a smart home’s power between electric vehicles, solar panels, batteries and the like—a potentially vast market.
Developers are another option. They bid for, build and run solar farms. While installing the panels isn’t complex, experience is valuable when pricing bids and navigating the permitting process, and scale is crucial to sourcing panels effectively.
and
have built huge renewable-power farms as part of wider utility businesses and have ambitious rollout plans for solar and wind. Their shares have given investors total returns of between 16% and 28% over a year, and now change hands for between 15 and 32 times forward…
Read More: All Aboard the Stock-Market Solar Coaster