Three Solar Investments to Buy and Hold

Solar stocks have been 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 partly due 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 leads 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 sectors could send solar stocks on an upward path for years to come.  Business Insights projects that the $163 billion global solar industry will reach $194.75 billion by 2027, exhibiting a CAGR of 6%.  

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 available. 

 

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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’s 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 which solar stocks to buy and 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  $8.89B
• Price / Earnings Ratio   124.3
• Price / Book Ratio  3.59
• YTD Daily Total Return  -18.20%
• Yield  0.10%
• Expense Ratio  0.69%
• Net Assets   3.57B
• Number of Holdings  49
• 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 with 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. 

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First Solar Inc. (FSLR) is a leader in the solar industry. 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. Company execs recently announced plans for a third factory in Ohio that will effectively double its production capacity.  

With a current P/E ratio of just 18, FSLR stock seems like a value compared to the industry average P/E of 47.  The 16 analysts offering 12-month price forecasts for First Solar Inc. have a median target of $101.50, representing an increase of around 8% from its current price.   

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Founded in 2001, Canadian Solar Inc. (CSIQ) is a leading manufacturer of solar photovoltaic modules and provider of solar energy solutions. The company operates primarily through two segments — Module and system solutions (MSS) and Energy. CSIQ has delivered roughly 52 GW of solar modules to thousands of customers in more than 150 countries through the end of 2020. This is sufficient to meet the clean, green energy needs of roughly 13 million households.  Canadian Solar derives roughly 47% of its revenue from Asia, 35% from the Americas, and 18% from Europe and everywhere else.

The company has been growing its revenue steadily over the years. In the second quarter, its revenue grew 105% over the pandemic-affected Q2 last year.

The company’s net revenue has grown at a CAGR of 4.4% over the past three years, while its EBITDA increased at a CAGR of 40.5% over the same period. Also, its EPS has grown at a CAGR of 112.5% over the past three years.  CSIQ had generated a 30% growth in shipments since 2013 and has generated nearly $1.4 billion in cash since 2013.

CSIQ has the potential to advance in the upcoming months based on its continued business growth, favorable earnings and revenue outlook, and favorable analyst sentiment.

Analyst sentiment, which gives a good sense of a stock’s future price movement, is good for CSIQ. It has an average broker rating of 1.64, indicating favorable analyst sentiment. Moreover, CSIQ has an impressive earnings surprise history, with the company beating consensus EPS estimates in each of the trailing four quarters.  Its EPS is expected to grow at a rate of 20% per annum over the next five years.

The 6 analysts offering 12-month price forecasts for Canadian Solar Inc have a median target of 51.50, which represents a 38% increase from its current price.  The current consensus among 7 polled investment analysts is to Hold the stock.  There are 3 Buy ratings, 4 Hold ratings, and no Sell ratings for the stock.

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