Solar inventories are rising after an apparent democratic crisis in the Georgia runoff elections that paves the way for a “blue wave” in which Democrats control the White House, Senate and House of Representatives. At this point it was Invesco Solar Portfolio ETF (NYSEARCA:TAN) increased by more than 10% on the day.
This is not a head fake. It’s the beginning of a multi-year outbreak in solar stocks.
The introduction of solar energy was already in an enormous upswing before the 2020 election. Falling costs, improving technology, and shifting consumer demand have forced homeowners and businesses alike to consider installing solar panels more seriously. Significant political catalysts are also in the pipeline now, as a democratically controlled government will almost certainly make it a priority to pass a major clean energy bill in 2021. Huge solar subsidies will likely be the focus of this law.
In other words, the solar market is prepared for several years of hypergrowth.
During this hypergrowth era, solar stocks will continue to rise – no pun intended.
With that in mind, let’s take a look at my three favorite solar stocks I want to buy for the Blue Wave Catalyst.
- SolarEdge (NASDAQ:SEDG)
- Solar power (NASDAQ:SPWR)
- Maxeon Solar (NASDAQ:MAXN)
Buying solar stocks: SolarEdge (SEDG)
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One of my favorite solar stocks to buy for the next several years is SolarEdge, as this large solar company has clear visibility to become the ubiquitous technological backbone of the solar industry in the 2020s.
Here is the story.
Solar systems consist of three main parts: the modules (which generate direct current when exposed to sunlight), the inverter (which converts direct current into alternating current that can be used by the power grid) and associated wiring, fuse boxes and mounting hardware.
Conventional solar systems were built with central inverters or an inverter that connected all the modules of a solar system together. These systems suffer from a “weakest link” problem where – since all modules in the system are connected through the same inverter – the entire system tends to operate on the output power of the weakest module in the system.
A breakthrough technology called the Power Optimizer was developed to address this “weakest link” problem. Power optimizers are basically intelligent electronic chips that are placed on each module. They monitor, track and adjust (if necessary) the output power of each individual module. In this way, power optimizers separate the system from the module and ensure that each module runs at its unique MPP or its maximum output power.
Power optimizers are the future technological backbone of solar. Almost every scale solar panel is equipped with solar optimizers to improve performance.
SolarEdge sells these performance optimizers, they have no rival in this area and their dominance is only growing. According to IHS Market, SolarEdge is the world’s leading provider of solar inverters / optimizers in terms of sales and performance. According to Wood Mackenzie, SolarEdge increased its share of the US home solar inverter market from near zero in 2013 to over 60% in 2019 – from fifth largest player in the space to one mile largest single player.
SolarEdge should be able to combine the advantage of its first mover with market-leading resources – the company has more than $ 1 billion in cash on balance sheet, around 400 full-time employees and a market capitalization of over $ 10 billion – to get inverter /. Optimizer management for the foreseeable future.
If so, SolarEdge will also see tremendous sales and earnings growth over the next few years as solar goes mainstream, and SEDG stock will be one of the biggest winners in the industry.
Source: IgorGolovniov / Shutterstock.com
Another of my favorite solar stocks for the 2020s is SunPower.
At a high level in the US and Canada, SunPower is a leading provider of $ 4 billion in integrated, integrated solar energy distribution and storage that provides an end-to-end, consumer-centric solution that covers the creation, financing, installation, and maintenance of Solar projects includes via a connected software app.
In other words, the company does not manufacture solar modules or invest in upstream research and development. Rather, the company only sells, finances and installs solar modules and the associated panel management software in private and commercial end markets.
The bull thesis on SPWR shares boils down to one thing: SunPower is the unrivaled leader in the premium solar module market.
SunPower’s solar modules are considered to be the most efficient modules on the market with an average efficiency of 19% to 23%. That is significantly more than the industry standard efficiency of 14% to 18%. These panels also have market-leading temperature resistance and a market-leading 25-year material guarantee.
Sure, the panels are a bit more expensive than the norm. But not much (around 15% more expensive), and customers say the premium is both worthwhile for the higher quality panels and is offset by the fact that SunPower offers a wide range of in-house financing solutions. For this reason, SunPower has one of the best Net Promoter Scores in the market at 69.
In other words, SunPower is today and plans to remain the dominant premium brand in the domestic solar industry.
This is an attractive position as most companies are likely to switch to premium solar panels (they cannot afford power outages), which means SunPower could win a number of corporate deals over the next several years as rising solar subsidies push companies to acquire them Solar.
In all of this, SPWR stock should rise.
Solar stocks: Maxeon Solar (MAXN)
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Last but not least on this list of the top solar stocks to buy is Maxeon Solar, a small solar technology company that makes the high quality solar panels installed by SunPower.
Maxeon is a brand new player in the solar world. The company was previously part of SunPower. In late 2019, SunPower decided to separate the upstream manufacturing business (Maxeon) from the downstream installation business (SunPower) so that SunPower and Maxeon can grow, mature and consolidate over the next few years by creating a niche for themselves by specializing in the value chain.
Hence, today Maxeon is a new entrant in the market, specializing in producing the world’s best solar panels, which have the highest energy conversion efficiency in the market, the lowest deterioration rate in the market, and the best durability and longest shelf life in the market.
From head to toe, the solar panels made by Maxeon are the best solar panels the world has to offer.
Maxeon has an exclusive agreement to sell these solar modules to SunPower in the US and Canada over the next several years. However, this exclusivity agreement ends with these two countries, which means that outside of North America, Maxeon has a great opportunity to become the world’s leading premium solar module manufacturer and sell its best-in-class solar modules to multiple installers across multiple continents.
For this reason I see Maxeon as one of the best “picks and shovels” games in the global solar energy megatrend.
Since this solar energy megatrend is gaining considerable momentum in the early 2020s, the MAXN share is likely to become significantly stronger.
At the time of writing, Luke Lango held positions (neither directly nor indirectly) in the securities identified in this article.
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