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Nov. 6, 2021, 10:49 a.m. EDT

These are the four solar stocks to own for the long run

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By Philip van Doorn

Solar stocks have burned some short-term investors, but they represent a long-term opportunity for those who expect a successful transition to a clean, sustainable source of electricity for homes and businesses.

To illustrate how volatile the sector can be, the Invesco Solar ETF /zigman2/quotes/210041821/composite TAN +3.73% is up 42% this year. But it was down 37% through the end of September from its 52-week intraday high set on Jan. 25. The ETF has retuned 473% for five years,

In an interview, Andrew Wetzel, a portfolio manager at F.L.Putnam Investment Management Co., discussed six stocks, including four solar plays and a utility company with a leading role in constructing solar arrays.

F.L.Putnam Investment Management Co. is based in Wellesley, Mass., and has $4.1 billion in assets under management. Wetzel, the firm’s managing director of sustainable investing, runs three related strategies:

  • A low-carbon “core” strategy across industries and market sectors, which typically holds 45 to 55 stocks.

  • An environmental opportunity strategy, which includes early-stage companies and special purpose acquisition companies (SPACs). Wetzel referred to this as the concentrated strategy; it can hold between 30 and 60 stocks.

  • A “diversified environmental strategy” combining the first two.

When discussing the “big picture” for investors who are interested in solar, Wetzel pointed to NextEra Energy Inc. /zigman2/quotes/200558509/composite NEE +2.17% , which he called “the largest builder or one of the largest builders of solar and wind assets in the U.S.,” and the NextEra Energy Limited Partners LP /zigman2/quotes/203407911/composite NEP +0.75% , which owns solar and wind assets that NextEra Energy Inc. has developed and is designed as an income vehicle, with a current distribution yield of 3.15% on the partnership units.

NextEra’s total return over the past 10 years has been 722%, making it the best performer in the S&P 500 utilities sector for the period.

Four solar stocks

Wetzel discussed four stocks narrowly focused on solar: Sunrun Inc. /zigman2/quotes/205021014/composite RUN +9.36% and Sunnova Energy International Inc. /zigman2/quotes/213414922/composite NOVA +7.19% , which install equipment and arrange financing for customers; and Enphase Energy Inc. /zigman2/quotes/207948472/composite ENPH +4.96% and SolarEdge Technologies Inc. /zigman2/quotes/207754270/composite SEDG +5.03% , which make solar inverters and monitoring systems.

Here are consensus sales estimates (in millions of dollars) for calendar years through 2025 among analysts polled by FactSet, along with expected compound annual growth rates (CAGR) for sales, for the four:

Company Est. sales – 2021 Est. sales – 2022 Est. sales – 2023 Est. sales – 2024 Est. sales – 2025 Two-year est. sales CAGR Three-year est. sales CAGR Four-year est. sales CAGR
Sunrun Inc. /zigman2/quotes/205021014/composite RUN $1,561 $1,815 $2,057 $2,511 $2,777 14.8% 17.2% 15.5%
Sunnova Energy International Inc. /zigman2/quotes/213414922/composite NOVA $241 $343 $478 $656 $797 40.8% 39.7% 34.9%
Enphase Energy Inc. /zigman2/quotes/207948472/composite ENPH $1,368 $1,893 $2,383 $2,829 $3,452 32.0% 27.4% 26.0%
SolarEdge Technologies Inc. /zigman2/quotes/207754270/composite SEDG $1,970 $2,562 $3,104 $3,543 $5,021 25.5% 21.6% 26.4%
Source: FactSet

Those are high expected double-digit growth rates. In comparison, the two-year expected sales CAGR are 5.8% for the S&P 500 /zigman2/quotes/210599714/realtime SPX +1.04% and 11.1% for the Nasdaq-100 Index (tracked by the Invesco QQQ Trust /zigman2/quotes/208575548/composite QQQ +1.62% ), which is as far out as FactSet’s index estimates go.

Wetzel described Sunrun and Sunnova as “very complex businesses that involve outside financing.”

Rising interest rates can hurt those stocks over short periods. Then again, even when the Federal Reserve begins to allow short-term interest rates to rise and curtails its bond purchases to allow long-term rates to rise, borrowing costs might remain relatively low, as they have since the financial crisis of 2008.

Sunrun provides solar installation and maintenance services mostly in the consumer/residential space, while Sunnova “is more of a dealer model,” Wetzel said.

/zigman2/quotes/210041821/composite
US : U.S.: NYSE Arca
$ 69.44
+2.50 +3.73%
Volume: 276,723
Jan. 20, 2022 10:05a
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/zigman2/quotes/200558509/composite
US : U.S.: NYSE
$ 84.38
+1.79 +2.17%
Volume: 1.19M
Jan. 20, 2022 10:06a
P/E Ratio
70.32
Dividend Yield
1.83%
Market Cap
$159.42 billion
Rev. per Employee
$1.49M
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/zigman2/quotes/203407911/composite
US : U.S.: NYSE
$ 74.12
+0.55 +0.75%
Volume: 50,634
Jan. 20, 2022 10:06a
P/E Ratio
26.92
Dividend Yield
3.49%
Market Cap
$12.98 billion
Rev. per Employee
N/A
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/zigman2/quotes/205021014/composite
US : U.S.: Nasdaq
$ 30.31
+2.60 +9.36%
Volume: 1.68M
Jan. 20, 2022 10:06a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$6.01 billion
Rev. per Employee
$175,898
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/zigman2/quotes/213414922/composite
US : U.S.: NYSE
$ 23.10
+1.55 +7.19%
Volume: 200,434
Jan. 20, 2022 10:06a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.52 billion
Rev. per Employee
$545,069
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/zigman2/quotes/207948472/composite
US : U.S.: Nasdaq
$ 141.26
+6.68 +4.96%
Volume: 363,027
Jan. 20, 2022 10:06a
P/E Ratio
121.90
Dividend Yield
N/A
Market Cap
$18.34 billion
Rev. per Employee
$1.45M
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/zigman2/quotes/207754270/composite
US : U.S.: Nasdaq
$ 243.76
+11.67 +5.03%
Volume: 66,643
Jan. 20, 2022 10:05a
P/E Ratio
91.05
Dividend Yield
N/A
Market Cap
$12.54 billion
Rev. per Employee
$557,674
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/zigman2/quotes/205021014/composite
US : U.S.: Nasdaq
$ 30.31
+2.60 +9.36%
Volume: 1.68M
Jan. 20, 2022 10:06a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$6.01 billion
Rev. per Employee
$175,898
loading...
/zigman2/quotes/213414922/composite
US : U.S.: NYSE
$ 23.10
+1.55 +7.19%
Volume: 200,434
Jan. 20, 2022 10:06a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$2.52 billion
Rev. per Employee
$545,069
loading...
/zigman2/quotes/207948472/composite
US : U.S.: Nasdaq
$ 141.26
+6.68 +4.96%
Volume: 363,027
Jan. 20, 2022 10:06a
P/E Ratio
121.90
Dividend Yield
N/A
Market Cap
$18.34 billion
Rev. per Employee
$1.45M
loading...
/zigman2/quotes/207754270/composite
US : U.S.: Nasdaq
$ 243.76
+11.67 +5.03%
Volume: 66,643
Jan. 20, 2022 10:05a
P/E Ratio
91.05
Dividend Yield
N/A
Market Cap
$12.54 billion
Rev. per Employee
$557,674
loading...
/zigman2/quotes/210599714/realtime
US : S&P US
4,579.70
+46.94 +1.04%
Volume: 365.99M
Jan. 20, 2022 10:06a
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/zigman2/quotes/208575548/composite
US : U.S.: Nasdaq
$ 372.42
+5.94 +1.62%
Volume: 9.80M
Jan. 20, 2022 10:06a
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