Not too long ago, renewable and alternative energy investments were considered a wildcard with the sector regarded as unchartered territory. But with the war against climate change in full swing and a growing number of investors willing to put their money where their values are–or, indeed, where they see the money coming from next–the clean energy sector has lately been sizzling hot.
Juxtaposed against their nimbler brethren, fossil fuel stocks are looking downright senescent.
The renewable energy favorite benchmark, the iShares Global Clean Energy ETF (ICLN), has easily bested its fossil fuel equivalent, the Energy Select Sector SPDR ETF (NYSEARCA:XLE), with YTD returns of 33.4% vs. 3.7%.
This hardly comes as a surprise given the ongoing large-scale push towards global clean energy including a growing number of high-profile companies led by Amazon and Apple that are pouring investments into renewable energy.
The current year marked an important milestone for the clean energy sector after renewable energy overtook coal as the biggest energy source in the United States, supplying 23% of power needs vs. 20% by coal. During the first half of the year, solar energy usurped hydroelectric power’s dominance by accounting for approximately 50% of total US renewable electricity generation.
Meanwhile, no less than 10 utilities have announced 100% decarbonization goals in the year-to-date. Analysts say that wind and solar energy have already achieved grid parity with traditional energy sources including fossil fuels. Microgrids—local energy grids that operate independently—are proving to be even more efficient than traditional alternatives.
According to Deloitte, the clean energy sector is fully primed to enter a new growth phase driven by growing customer demand, innovation, and cost competitiveness.
A staggering $2.6 trillion has been pumped into renewable energy investments over the past decade, with more dollars invested in renewables than in fossil fuels. This trend is expected to continue over the next decade.
Here are our top renewable energy picks:
#1 Wind + Solar: NextEra Energy Inc.
Market Cap: $114.0B
YTD Share Returns: 34.1%
NextEra Energy Inc. (NYSE:NEE) is a Florida-based clean energy company and America’s largest electric utility holding company by market cap. NEE is the world’s largest producer of wind and solar energy with 45,900 megawatts of generating capacity. The company owns eight subsidiaries, with the largest, NextEra Energy Services, supplying 5 million homes in Florida with electricity. Related: The World Is Getting Windier And Renewables Will Benefit
NEE stock has hit all-time highs as the company continues to post robust growth. During the last quarter, the company reported revenue of $5.57B (+26.0% Y/Y) and GAAP EPS of $1.81. The company also reported a double-digit percentage increase in operating cash flow.
During the earnings call, management reiterated its 30×30 goal to install more than 30 million solar panels, or roughly 10,000 megawatts of incremental solar capacity, in Florida by 2030 through one of its subsidiaries, Florida Power & Light (FPL).
Another of NEE’s subsidiaries, NextEra Energy Partners LP (NYSE: NEP), is publicly listed and pays out a 4% dividend—one of the highest in the industry. NEP acquires, manages, and owns contracted clean energy projects with a preference for businesses with stable, long-term cash flows. NextEra Energy Partners owns interests in dozens of wind and solar projects in the United States, as well as natural gas infrastructure assets in Texas. These contracted projects use leading-edge technology to generate energy from the wind and the sun. The company’s management is shooting for 12-15% dividend growth through 2024, making this an ideal stock for income investors.
#2 Biofuels: Cosan S.A.
Market Cap: $3.8B
YTD Share Returns: 97.2%
Cosan S.A. (NYSE:CZZ) is a Brazil-based biofuels conglomerate with operations across South America and the U.K. Cosan has interests in the bioethanol space, among other energy projects. The company generates 940 MW of sugarcane bioethanol through its Raízen Energia arm, placing it among the leading producers of bioenergy.
CZZ stock has been flying as the company continues to undertake significant operational improvements and strong execution by management. The company reported revenue of R$3.34B (+38.0% Y/Y) and net income of R$418.3M during its Q2 earnings call.
Although Cosan is going through a challenging macro environment due to global oversupply pressuring sugar prices as well as lower ethanol prices in Brazil, the company’s management has continued to execute well, thus inspiring confidence in the company.
#3 Solar: JinkoSolar Holdings Co.
Market Cap: $768.54M
YTD Share Returns: 85.8%
JinkoSolar Holdings Co. (NYSE:JKS) is the largest PV module manufacturer in the world, with a 12.8% slice of the market. Headquartered in Shanghai, China, the company shipped a record 11.4 GW of modules in 2018 and is on course to exceed that in the current year. The company’s products include silicon wafers, solar modules, and solar cells sold in 70 countries across the globe.
JKS stock has been an exemplary performer with the investing world who has been particularly impressed with the company’s expanding margins that management chalks up to the ongoing shift to integrated mono capacity and cost reduction. Q3 revenues climbed 8.2% Q/Q and 11.8% Y/Y to RMB7.48B ($1.05B), mainly due to an increase in average selling price (ASP) of solar modules as well as higher multi-crystalline silicon wafer sales. The company guided for 4.2K-4.4K MW solar module shipments for the fourth quarter and 4.2-4.4 GW for the entire year. Related: U.S. Energy Emissions Rise For The First Time In Half A Decade
As the cost of solar technology continues to gradually decrease, analysts expect Beijing to cut the prices offered to solar developers, which should help companies like JinkoSolar to compete on a more even keel with coal-fired energy providers.
#4 Wind Power: Vestas Wind Systems
Market Cap: $18.4B
YTD Share Returns: 26.0%
Vestas Wind Systems (OTCPK:VWDRY) is the world’s largest wind power company, responsible for more wind turbine installations than any other company, estimated at around 68,000 turbines in 80 countries. Apart from the turbines, this Denmark-based company services more than 40,000 turbines and delivers approximately 800,000 wind turbine parts annually.
The company’s shares jumped nearly 20% after it reported healthy Q3 results including a robust increase in orders. Revenue last term came in at €3.65B, good for +29.9% Y/Y growth while adjusted operating profit climbed 55% Y/Y to €429M. Gross margin improved 200 basis points to 11.8% while order intake reached 4,738 megawatts. The order backlog hit an all-time high of €32B. The company has shipped 3.7-gigawatt in the first 9 months this year, a good 39% higher than last year’s comparable period.
Vestas recently won a huge order to supply New Zealand’s largest wind farm.
The company’s management is optimistic that orders, revenue, and profits will continue to climb as demand for renewable power sources continues to grow.
#5 Nuclear Energy: MKS Instruments Inc.
Market Cap: $5.6B
YTD Share Returns: 67.6%
Nuclear power is presently classified as a sustainable energy source; however, it could become completely renewable if the uranium source changed from mined ore to seawater. Since the uranium mined from seawater is replenished continuously through a geologic process, nuclear energy would become as renewable as wind and solar.
While nuclear energy has been gradually falling out of favor as evidenced by shrinking investments, that does not mean that investing in the sector has stopped being profitable. One company that has been defying the odds is MKS Instruments Inc. (NASDAQ:MKSI).
Massachusetts-based MKS Instruments is a global provider of subsystems, instruments, and process control solutions. The company manufactures a variety of nuclear fuel processing, nuclear accelerator, and uranium conversion systems. These include nuclear parts such as valves, sensors, and other related products. MKS Instruments holds 600 nuclear-related patents.
Q3 revenue clocked in at $462.45M, which though representing a 5.1% Y/Y contraction was still ahead of the Wall Street consensus while GAAP EPS of $0.86 beat by $0.29. Meanwhile, the company provided healthy Q4 guidance that has revenue at $445-495M (analysts’ consensus: $461.95M) and EPS of $0.85-1.19 (analysts’ consensus: $1.02).
MKS has a track record of profitable and sustainable growth and has lately been focusing more on high-growth markets. This looks like a stock that’s likely to continue outperforming the market over the next couple of years.
So, while you’re reevaluating your 2020 investment lineup, don’t dismiss those renewables—the investments are just as worthy of your attention as fossil fuel investments.
By Anes Alic for Oilprice.com