The 7 Best Green Energy Stocks to Buy
Investments in green energy stocks are on the rise. These seven names could benefit from a long-term trend toward sustainability.
Green energy stocks haven't always performed as well as expected. Even with years of growing adoption of solar, wind, hydroelectric and other clean sources of power generation, investing in the underlying renewable energy companies has often been a roller-coaster ride.
While green energy stocks can be volatile and challenging to invest in, one cannot fault the excitement around them – especially with investments in the sector ramping up.
Consider that in the first quarter, assets in investment funds with at least a partial environmental mandate reached $2 trillion globally, tripling in three years, according to The Wall Street Journal.
Since 2019, nearly $500 billion has flowed into stock funds with environmental, social and governance (ESG) criteria, compared with $103 billion for all other stock funds.
There is a profound and seemingly long-lasting shift to sustainability, with the U.S., China and Europe all on a green path. And U.S. cities and counties more than tripled the size of their renewable energy deals from 2015 to 2020, according to the American Cities Climate Challenge.
Moreover, the reign of the internal combustion engine (ICE) might be coming to an end to give way to the battery electric vehicle. As of mid-2020, 17 countries have set 100% zero-emission vehicle targets or the phase-out of ICE vehicles by 2050, according to the International Energy Agency.
Meanwhile, the top 10 global automakers are investing $200 billion into electric vehicles (EVs), more than what the U.S. spent over 13 years on the Apollo space program to land a man on the moon, adjusted for inflation, according to a 2021 KPMG report.
With that view, here are seven of the best green energy stocks to buy. Some of these companies are directly involved in producing green energy, while others are leveraging the use of cleaner energy sources. But every stock has been selected because they possess unique competitive advantages with room to grow. They also all exhibit financial health, with a current ratio at or above 1.00, meaning their liquid assets meet or exceed short-term liabilities.
Data is as of June 18.
Clearway Energy
- Market value: $5.2 billion
- 2020 revenue: $1.2 billion
- Current ratio: 1.0
Clearway Energy (CWEN, $26.65) makes it easier for consumers and businesses to go green. The company is a developer and operator of renewable energy projects, with solar and wind assets in 25 states. CWEN also provides energy storage services.
Global Infrastructure Partners, one of the world's largest infrastructure investors managing $71 billion in assets, owns a controlling interest in the company through Clearway Energy Group.
One distinguishing initiative by Clearway is the "community solar" farm, which offers subscriptions to households, small businesses and commercial customers in exchange for energy credits that lower their utility bills.
The idea behind these farms is to take the hassle away from folks having to install solar panels themselves. Instead, the community shares a solar farm built by Clearway Energy. To date, the company has nearly 100 community solar farms currently operating or under development including in Colorado, Illinois, Massachusetts, Minnesota and New York.
For larger clients, Clearway Energy builds what it calls "distributed solar," or solar systems it installs on roofs, carports and on the ground for hospitals, cities, universities, corporations and others. Clients include Arizona State University, Whole Foods Market – which is owned by Amazon.com (AMZN) – and MGM Resorts International (MGM).
Clearway Energy stands out among green energy stocks because of its high 4.9% dividend yield. That's more than three times better than the 1.4% yield on the S&P 500.
As far as green energy stocks go, the pros are all in on this one. The consensus analyst rating on CWEN is Buy.
Canadian Solar
- Market value: $2.4 billion
- 2020 revenue: $3.5 billion
- Current ratio: 1.1
With global emphasis on renewable energy on the rise, the future is looking sunny for Canadian Solar (CSIQ, $39.39). The company is one of the world's largest manufacturers of solar panels, inverters and related equipment.
It also manages solar plants globally and provides battery storage solutions. In the company's fiscal first quarter, Canadian Solar said it expects revenues to jump 70% year-over-year in 2021 to arrive between $5.6 billion to $6 billion.
Most analysts think CSIQ is tops among green energy stocks, with the consensus rating sitting at a Strong Buy.
CFRA is a rare dissenter, recently maintaining its Hold rating on Canadian Solar and reducing its 12-month price target on the stock by $6 to $52. That's largely on valuation concerns; analyst Stewart Glickman says the price is 5.7 times his firm's 2022 EBITDA (earnings before interest, taxes, depreciation, and amortization) projection, which is below the company's forward average valuation.
Glickman notes that rising polysilicon prices remained unabated in the first quarter, which led CSIQ to raise prices sequentially by 10% for modules – its largest incremental hike ever.
"The company appears to be willing to cede market share in order to protect margins should cost pressures continue to rise, which we think would be the better option."
He does say that Canadian Solar expects higher sales volumes in the second half of 2021, and free cash flow – which is the cash leftover after capital expenditures, dividend payments and financial obligations are met – should become positive later this year.
Ford
- Market value: $58.0 billion
- 2020 revenue: $127.1 billion
- Current ratio: 1.2
Call it ironic or plain brilliant, Ford (F, $15.11), one of the world's largest automakers whose founder Henry Ford brought the gasoline-powered automobile to the masses, is doubling down on going green. No doubt it saw the trend towards electric vehicles; this shift was emphasized by its May 26 investor meeting where it outlined the Ford+ plan.
Ford+ includes a goal for 40% of the automaker's global vehicle volume to be electric by 2030, including the Mustang Mach-E, which is already on the market, and the F-150 Lightning pickup, which will go on sale next year. E-transit commercial vans will debut later in 2021. Ford also raised its total spending on electrification to more than $30 billion by 2025. This includes investments in battery technology, development and production.
The automaker also plans to enhance its digital services through one million connected Ford vehicles that will be on the road by the end of 2021. It is integrating its vehicles with digital technologies from Apple (AAPL), Amazon, Alphabet (GOOGL) and Baidu (BIDU). It also unveiled Ford Pro, an initiative that focuses on serving business clients.
Argus Research analyst Bill Selesky reiterated his Buy rating on the green energy stock after the company swung to an adjusted net profit of $3.6 billion (89 cents per share) in the first quarter – compared with an adjusted net loss of $919 million (23 cents per share) in the same quarter a year ago. Ford's reversal of fortunes resulted from sales rising globally, with "meaningful growth" especially in China, Europe and North America, the analyst says.
Even with headwinds from the chip shortage, business should strengthen overall due to expectations for increased consumer spending helped by stimulus payments and the vaccine rollout, low borrowing costs and record savings rates, Selesky points out in a recent note.
Also, customers have been receptive to Ford's new products as well as its electric vehicles, he adds. "With a strong balance and new management in place, we believe the shares have excellent potential over both the short-term and long-term."
Atlantica Sustainable Infrastructure
- Market value: $4.0 billion
- 2020 revenue: $1.0 billion
- Current ratio: 1.8
From a wind farm in Uruguay to a solar electric generation facility in California, Atlantica Sustainable Infrastructure (AY, $36.50) puts its capital to work in the sustainable energy industry.
The U.K.-based company owns or has a stake in solar, wind, hydroelectric and other sustainable energy facilities and assets in North and South America, as well as certain markets in the EMEA (Europe, Middle East, Asia) region.
Atlantica operates long-running assets – the weighted-average contracted life left is 16 years – with regulated revenues underpinned by contracts, which result in stable cash flows. All of the assets also have project financing in place, the company said.
About 72% of Atlantica's holdings are in renewables, 14% are in efficient natural gas, 11% is in transmission and 3% is in water. Per CAFD (cash available for distribution) estimates for the 2021-2025 period, around 41% of AY's assets are located in North America.
Back in March, Raymond James analyst David Quezada raised his rating on the stock to Outperform (the equivalent of a Buy). He also has a 12-month target price of $47.
Quezada cited AY's pullback in the first quarter as one reason for the stock upgrade. But he also noted that his "constructive" view on the company is due to Atlantica's "solid" growth in CAFD, a "strong" pace of equity investments – most of which are already secured for this year – the company's top ESG standing and a "strong visibility" on longer-term growth for the business.
Many on Wall Street already have AY on their list of the best green energy stocks. The consensus analyst rating for Atlantica Sustainable Infrastructure is Strong Buy.
Nio
- Market value: $76.9 billion
- 2020 revenue: $2.5 billion
- Current ratio: 3.1
Nio (NIO, $46.91) has been called the Tesla (TSLA) of China. It makes sleek and innovative vehicles boasting features such as floating car displays, two-spoke steering wheels, invisible smart air vents, massage seats, sensors, radar, soft-opening doors and autonomous driving.
A solid-state battery for its cars is coming in 2023 that will offer a 620-plus mile range, exceeding Tesla's top range. The company recently announced it was expanding into Norway, its first foray outside China and into Europe.
The stock got a lift after Nio reported that car deliveries in May roughly doubled. Citi analyst Jeff Chung upgraded it to Buy from Neutral, raising his price target to $58.30 from $57.60.
Chung expects demand for Nio's cars to gain ground in coming months, so any weakness in the stock would be a buying opportunity. Citi also raised its 2021 new energy vehicle sales forecast in China to 2.52 million units from 1.79 million.
Deutsche Bank analyst Edison Yu believes Germany and Denmark could be the next destinations for Nio. Investors "underappreciate the longer-term potential of the region," he says.
German and other European automakers traditionally dominate the continent's premium auto market. But EV's arrival opens an opportunity to grab share. Moreover, Nio is "localizing its entire ecosystem" instead of exporting its cars to Europe.
While it will not be easy for an unknown brand to gain ground in Europe, smaller and weaker automakers that find it hard to go electric could be vulnerable to Nio, Yu contends. Also, he says, the company's cars with its suite of features "could eventually resonate well with consumers."
Yu notes that Nio has more than $7 billion in cash, giving it ample capital to expand in the continent. He has a Buy on the shares with a $60 price target.
Analysts overall regard Nio as one of the best green energy stocks, with the average recommendation a Strong Buy.
SolarEdge Technologies
- Market value: $13.7 billion
- 2020 revenue: $1.5 billion
- Current ratio: 4.0
Without solar inverters, homes and businesses cannot harness the power of solar energy for power. These inverters convert direct-current (DC) solar power into alternating current (AC) used by appliances and other electronics. SolarEdge Technologies (SEDG, $264.23) is one of the world's largest makers of solar inverters.
The Israeli company saw a compound annual growth rate (CAGR) of 31.4% from 2016 to 2020; EPS rose by 54% overall in the same period. What's more, SEDG's total assets are nearly double its total debt: $2.5 billion compared with $1.4 billion as of March 31.
The consensus analyst rating on the stock is Strong Buy.
BofA Securities analyst Aric Li upgraded SEDG to Buy because he sees a buying opportunity following the recent decline in the stock price. Li believes the pullback was "overdone" because investor concerns around chip shortages persisting into 2022 are "ultimately transient headwinds." The long-term outlook is "positive" and demand is "clearly robust."
Guggenheim also has a Buy rating on the stock, with a price target of $314. The firm recently initiated coverage of the company.
Not all analysts agree SEDG should be among the top green energy stocks.
Needham sees current supply-chain issues as a reason to keep the stock rating at Hold. However, analyst James Ricchiuti also points out the company's "stronger-than-expected" first-quarter results, above-consensus second-quarter forecast and "solid" gross margins. Additionally, he notes demand in SolarEdge's solar business "remains strong" and that the company "appears confident" about meeting demand beyond the second quarter.
Hannon Armstrong Sustainable Infrastructure Capital
- Market value: $4.3 billion
- 2020 revenue: $187 million
- Current ratio: 20.5
Hannon Armstrong Sustainable Infrastructure Capital (HASI, $54.93) believes there are above-average returns to be gained from investing in climate-friendly solutions.
It manages over $7 billion in assets and exclusively invests in companies involved in energy efficiency, renewable energy and other sustainable infrastructure markets. Hannon believes in its mission so much that it requires companies seeking its capital to be neutral or negative in incremental carbon emissions or show other environmental benefits.
Baird analyst Ben Kallo has an Outperform (Buy) rating on the stock and a price target of $61. He notes that the company reported "solid" first-quarter results and confirmed that the CAGR of its distributable earnings will be 7% to 10% from 2021 to 2023. As for dividend-per-share growth, the CAGR is expected to come in between 3% and 5% over the same three-year period.
Hannon is a top pick among green energy stocks due to its "consistent execution, growing pipeline and focus on renewables," Kallo says.
HASI offers investors a "unique" opportunity to invest directly in the financing of renewable energy and energy efficiency companies, Kallo adds.
The company has helped finance more than 450 sustainable infrastructure projects since 2000. Moreover, Hannon invests in projects that tend to be "relatively low risk with recurring and predictable cash flows." It works with "high credit quality obligors" such as federal, state, and local governments, utilities and hospitals, the analyst says.
B. Riley analyst Christopher Souther also has a Buy rating on Hannon, with an $80 price target. "We are beginning to see early signs of the strong potential for the company to benefit from [the] Biden administration policy via an uptick in energy efficiency opportunities," he says.
The consensus analyst rating on HASI is Strong Buy.
