A few months ago, I discovered that the top 5 positions in my portfolio were all in the green energy space – maybe something you can expect from someone whose pseudonym is “solar investing”. However, initially I invested small to moderate amounts in each of these companies – it was the tremendous appreciation that led them to the top 5.
The companies are SolarEdge (SEDG), Tesla (TSLA), Enphase (ENPH), BYD Company (OTCPK: BYDDY), and JinkoSolar (JKS). As I wrote this, Joe Biden was on the verge of winning the presidency one day. The solar companies SEDG, ENPH and JKS gained an astonishing 12 to 26% that day. EV manufacturers TSLA and BYDDY are up a modest 2-3%. No, it wasn’t a one-day aberration, all five were up sharply for the year before the US election.
Wind and sun are leaders in the booming non-hydropower renewable energy sector
The EIA predicts that despite COVID-19, utility-scale solar energy will increase in 2020, even if the decline in coal accelerates. The trend is even more pronounced when you consider that distributed (roof) solar energy is also booming. As wind and solar costs continue to fall, the trend will likely only accelerate.
The market sees it. In the 3-year chart below, you can see how clean energy stocks have significantly outperformed in both the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ). I didn’t include fossil fuel stocks on the chart as their decline over the past 3 years has been absolutely miserable.
Data from YCharts
Why is clean energy growing so fast, especially the generation of wind and solar power? There are two main reasons:
First, as mentioned above, wind and sun are the cheapest way to generate electricity today in most parts of the world. For this reason, energy providers are building solar and wind parks instead of power plants with fossil fuels. This is also why the EIA sees for the first time that distributed solar power is leading the renewable energy boom. A great example is all of the solar panels you see along the highways. Extracting electricity from masts in combination with batteries is much cheaper than laying new lines.
Second, there is growing awareness around the world that fossil fuel burning is causing climate change and causing irreparable damage to our planet – the place we all live. Melting ice caps, more intense storms, extreme drought and heat, and failing ecosystems put a strain on those who take the time to notice. Scientists are documenting a steady rise in world temperatures as CO2 levels rise inexorably. For those on guard, it’s pretty alarming.
Many investors, both institutions and individuals, believe that investments in renewable energies are not only financially worthwhile, but also morally correct. Hence we see an institutional divestment of fossil fuels. This, along with low fossil fuel prices, has contributed to falling prices for large oil stocks like blue-chip Exxon Mobil (XOM), which have fallen by over 50% over the past 3 years. Then there are momentum players who don’t really care. You just jump on the bandwagon to profit.
Regardless of the reason, investing in renewable energy has been extremely profitable over the past two to three years.
However, fossil fuels seem to be with us for quite a while. Even with the rapid growth of renewable energies, the worldwide burning of fossil fuels, although slowing down, is still increasing along with CO2 levels and global temperatures.
Source: World Energy 2020 BP Statistical Review
These are sobering numbers, but no matter what, it bodes well for renewable energy. There is a tremendous amount of fossil fuel power generation to displace.
My top 5 stocks with green energy
As mentioned above, my top green positions are SolarEdge, Enphase, Tesla, BYD Company, and JinkoSolar.
SolarEdge and Enphase sell solar systems that make solar modules more efficient under various conditions. Tesla, the world’s leading manufacturer of electric vehicles, is based in California and has manufacturing facilities in the US, China and (soon) Europe. JinkoSolar, based in China, is a leading global manufacturer of solar modules. BYD is a leading Chinese EV manufacturer of cars and commercial vehicles.
The following graphic shows how the shares of the 5 high-profile companies have developed over the past 3 years.
Data from YCharts
It should be noted that Enphase’s failed profits are due to its very low valuation 3 years ago when the company was on the verge of bankruptcy. It’s been a great success story ever since.
Company highlights and notes
SolarEdge sells power optimizers, inverters, software, batteries and more for residential, commercial and utility scale solar systems. Optimizers help panels produce more electricity, inverters convert direct current (direct current) to alternating current (alternating current) at various voltage levels, while solar software provides system overviews and controls.
The company is now engaged in energy storage and deals with grid services and virtual power plants. All of these areas are booming as the world moves from centralized power generation from fossil fuels to decentralized power generation from multiple sources. Because SolarEdge outsources manufacturing, this is not limited by expensive factory designs.
The Israel-based company has an excellent track record and has grown steadily over the past few years. It’s my biggest stake in the industry.
Enphase designs, develops, produces and sells solar home energy systems. Each panel is equipped with a micro-inverter. Microinverters work best when the panels have penumbra. These systems do not require a central system inverter, as solar-generated direct current is converted into alternating current at panel level. This can be more expensive, but the company claims it’s safer, more reliable, and more efficient.
Like SolarEdge, Enphase also goes into energy storage. The company prides itself on its safe and environmentally friendly, cobalt-free Encharge LFP batteries.
The company works closely with its installers and customers. Customers receive a mobile app with which they can monitor and control their system.
TeslaUnder the controversial CEO Elon Musk, he has developed into the world’s leading manufacturer and seller of electric vehicles. Today the company seems to have almost everything to do with green energy – storage, solar panels, solar roofs, and now microgrids and virtual power plants.
In July, ex-CEO of Volkswagen AG (OTCPK: VWAGY), Herbert Diess, stated that Tesla could become the world’s most valuable company if it is as successful in its other endeavors as it is in electric vehicles.
Seeking Alpha has plenty of bearish and bullish articles about Tesla for readers to read. My only comment here is that I wish I had listened to the cops more than the bears.
WORLD Company is a large Chinese company that manufactures EV cars, buses and trucks. The company was originally a manufacturer of rechargeable batteries for cell phones and other electronic devices but entered the EV business after an acquisition in 2002, which has grown significantly. The company sells electric vehicles and batteries mainly in Asia, but also in Europe, the US and elsewhere.
China’s promise to become carbon neutral by 2060, BYD’s latest move towards ridesharing and hailing, and good financial results have pushed the stock up significantly in recent months. Warren Buffett has a significant stake in the company. The name BYD stands for Build Your Dreams.
Jinko Solar is one of the world’s largest manufacturers of solar modules. Jinko distributes its products and sells its solutions and services internationally in Asia, Europe, the USA, Africa, the Middle East and elsewhere. Jinko offers 3 panel models: Cheetah, Swan and Tiger. It offers half-cell (good in penumbra) and bi-facial technology (used in highly reflective areas like light roofs and deserts).
The company has started major projects in Greece, Vietnam, China and Chile in the past few months.
Below is a table of relevant financial metrics for the 5 companies featured in this article. While this is fleeting and brief, this is only an introductory / review article. Before investing, investors are advised to conduct further analysis and apply due diligence.
All dates are from November 8th.
|Company ticker||Market capitalization||Revenue – Million USD (ttm)||Sales growth (5 year average, year)||SPORTS||Total debt / equity||Free Cash Flow (ttm)|
|SEDG||$ 12.2 billion||$ 1,520||50.8%||60 (fwd)||59.6%||$ 83.5 million|
|TSLA||$ 408B||$ 28,176||52.4%||179 (fwd)||86.7%||$ 2.36 billion|
|ENPH||$ 15.5 billion||$ 720||19%||97 (fwd)||90.5%||$ 120.23 million|
|It would||$ 75 billion||$ 20,137||16.9%||154 (ttm)||89%||19,812|
|JKS||$ 2.9 billion||$ 4,804||25.8%||17 (forward)||167%||None|
Table by author
As mentioned above, all five companies have seen strong appreciations in recent months. So it is fair to ask if they are potentially overrated right now. In my opinion, the energy transition – replacing fossil fuels with renewable energies – has only just begun, and in the long run green stocks have a big ramp ahead of them and investors can either take a small initial position at current values or accumulate additional small up moderate amounts for break-ins. As always, you want to stay varied.
The future is green no matter what
We now have President-elect Joe Biden, who has pledged to reinstate the US in the Paris Agreement. This is very positive for green stocks, as evidenced by the huge outperformance on Friday when it was found that Biden was going to win.
Even during the fossil-fuel-friendly Trump administration, green stocks have done very well thanks to falling costs.
The 5 green energy stocks presented here are all large companies and leaders in their fields. I like to hold these stocks as I think they have a very bright future.
Here’s a final clue as to what we have before us.
Disclosure: I am / we are SEDG, ENPH, TSLA, BYDDY, JKS for a long time. I wrote this article myself and it expresses my own opinion. I am not receiving any compensation for this (except from Seeking Alpha). I do not have a business relationship with any company whose stocks are mentioned in this article.