Solar stocks got slammed in May due to the impact of supply chain bottlenecks and parts shortages, but the sector seems to be gaining strength as the move toward renewable energy is becoming more mainstream in the U.S. and especially internationally.
Over the last decade solar energy has witnessed an average annual growth rate of 49%. This phenomenal growth is due in part to strong federal policies like the Solar Investment Tax Credit which currently provides a 26% tax credit on solar investments.
Another factor that is fueling growth in the industry is declining prices for solar components and installation. The cost of solar has plunged 90% over the past decade along with falling equipment and infrastructure prices. An average-sized residential system has dropped from a price of $40,000 in 2010 to roughly $20,000 today.
The growth in solar is hardly restricted to the residential sector. Solar power has helped many Fortune 500 companies cut back on costs. Apple, Amazon, Target and Walmart have all invested heavily in solar production at various locations around the country. Apple is leading the way with more than 390 MWs of commercial capacity and Amazon is a close second with 329 MWs.
Rapidly declining installation costs and increasing demand across the public and private sector could send solar stocks on an upward path for years to come. By 2026, the global solar industry is projected to be worth $223.3 billion.
Solar stocks are down from their February peak, and this may be an excellent time to buy the dip. Solar power isn’t going anywhere anytime soon, which means continued growth can be expected in the long term. In this article we’ll compare some of the top solar investments for the second half of 2021 and beyond.
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The Invesco Solar ETF (TAN) is a great way to gain exposure to solar without investing in just one stock. The fund seeks to track the MAC Global Solar Energy Index and is comprised of about 35 individual components — including both U.S. and international stocks. The fund follows a blended strategy, investing in both value and growth stocks with various market caps.
TAN share price reached its peak in mid-February and has fallen since. However, it could be an excellent opportunity to get in at a more attractive price as growth in the solar industry will likely gain strength in the long term.
ETFs, by their nature, are often considered a less risky investment as they tend to be much less volatile than individual stocks. If you’re unsure about which solar stocks to buy, and if you want to cut back on potential risk, TAN is a relatively safe way to add solar energy to your investment portfolio.
Invesco Solar ETF (TAN)
- Weighted Average Market Cap $11.95B
- Price / Earnings Ratio 119.23
- Price / Book Ratio 3.16
- YTD Daily Total Return -21.79%
- Yield 0.11%
- Expense Ratio 0.69%
- Net Assets 3.13B
- Number of Holdings 147
- Top Holdings Enphase Energy, SolarEdge Technologies, Xinyi Solar Holdings Ltd.
Of course, compared to other solar investments, a less risky ETF investment probably won’t provide exponential returns in the near term. For investors who have a higher tolerance for volatility, an investment in an individual company is likely the more desirable choice. But due to high levels of competition in the space, not all solar companies are guaranteed to sustain. It’s important to be selective when evaluating solar stocks and choose companies with a proven reputation and a strong balance sheet. In the next section we’ll cover two of the top solar stock choices available.
First Solar Inc. (FSLR) is a leader in the solar industry and unlike many burgeoning solar companies, they have a rock solid balance sheet that can handle the challenges of an economic downturn.
Due to a stable client base, First Solar performed very well in 2020. Despite the challenges of the pandemic, they had a backlog of orders throughout 2020 and their share price rose more than 80%. However, the share price has dipped in 2021, which means now may be a great time to buy FSLR stock at a reduced price point.
There is plenty of upside in the sector and plenty of room for growth. Overall, solar energy only accounts for around 2% of the total grid usage right now. That number is primed to go up and First Solar is preparing for growing demand. Just last week company execs announced plans for a third factory in Ohio that will effectively double its production capacity.
With a current P/E ratio of just 16, FSLR stock seems like a value when compared to the industry average P/E of 47. The 14 analysts offering 12-month price forecasts for First Solar Inc. have a median target of $85, which represents an increase around 11% from its current price.
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Next up on the list is Israel based SolarEdge Technologies (SEDG). SolarEdge operates in more than 30 markets, providing inverters, optimizers, monitoring equipment & tools and accessories for harvesting and conversion of solar energy.
The American marketplace is more saturated and has heavier competition, but SolarEdge has shown itself adept at making hay in Europe. The company reported that the European continent accounted for $144 million in revenue, which represents a revenue increase of $22 million from the previous quarter.
SolarEdge technology is some of the most respected in the industry, mostly due to the fantastic job they’ve done in reinvesting in the business. This is especially true when it comes to its inverters where it is hands down the market leader. Its solar photovoltaic (PV) inverter systems are being installed in more than 133 countries across five continents.
Climate change is an important global issue right now. SEDG share price will likely rise even more over the next few years as more residential and solar properties switch to solar power.
The current consensus among 22 polled analysts is to Buy SEDG stock. 13 rate the stock a Buy, 6 call it a Hold and only 3 analysts say to Sell SEDG. The 20 analysts offering 12-month price forecasts for SolarEdge have a median target of $313, which represents a 27% increase from its current price.
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