No matter what the circumstances, renewable energy stocks offer tremendous relevance. Basically, that’s where the political and ideological winds are directing the money toward. Even better, a possible pivot in monetary policy could finally shine a positive light on the sector after a brutal outing throughout 2023.
Let’s back up for a moment. According to Grand View Research, the global renewable energy market will soon reach a valuation of $1.21 trillion. Further, experts project that the sector will expand at a compound annual growth rate (CAGR) of 17.2% from 2024 to 2030. At the culmination point, the industry may print revenue of $3.6 trillion. Thus, green energy stocks offer tremendous relevance.
However, a tough economic backdrop – driven by rising borrowing costs to combat inflation – badly hurt several renewable energy stocks. Fortunately, the Federal Reserve hinted that interest rate cuts could be in store next year. Because of this prospect, demand for this investment category rebounded.
It’s still speculative but if the Fed actually goes through with the cuts, you’ll want to pay attention to these renewable energy stocks.
NextEra Energy (NEE)
An energy company renowned for its go-green prowess, NextEra Energy (NYSE:NEE) commands approximately 58 gigawatts (GW) of generating capacity, per its public profile. It’s the world’s largest electric utility holding company by market capitalization. However, circumstances have not been kind to NEE stock in 2023. Based on present conditions, it looks like it will close out the year down around 28%.
So, what the heck happened? As you might guess, spiked borrowing costs contributed largely to the pain. Unfortunately, management admitted that higher interest rates made it difficult to fund the company’s growth plans. And that contributed to reducing its dividend growth target, a no-no for a utility. That said, that was 2023. Circumstances could be far different in 2024, making NEE worth a look among renewable energy stocks.
I don’t want you to dismiss the financial vulnerabilities that NextEra has incurred. But on the positive side, the company appears de-risked. For example, the market prices NEE at a trailing-year earnings multiple of 15.91X. Last year, this multiple ran up to triple digits. So, it’s worth consideration for green energy stocks if the Fed goes dovish.
Baker Hughes (BKR)
At first glance, Baker Hughes (NASDAQ:BKR) does not seem anywhere close to belonging to a list of renewable energy stocks. Billed as an energy technology firm, Baker Hughes is arguably the most well-known for its oilfield solutions. Oil is many things but green and sustainable are descriptors not commonly assigned to the viscous liquid.
However, BKR deserves a closer look as it’s an indirect play for green energy stocks. Specifically, the company offers a diverse range of geothermal solutions across several stages of the well lifecycle. From seismic surveys to drilling technologies to formation assessments, Baker enables geothermal specialists to conduct their operations in a productive and economically viable manner.
To be fair, the geothermal energy market is a slow mover, projected to expand at a compound annual growth rate (CAGR) of 5.9% from 2022 to 2027. Still, at the culmination point, the sector could reach a valuation of $9.4 billion, which is sizable considering Baker’s $35 billion market capitalization.
Also, the company provides other relevancies, making BKR a well-rounded energy investment. Finally, analysts peg shares a consensus strong buy.
Canadian Solar (CSIQ)
A manufacturer of solar photovoltaic (PV) modules, Canadian Solar (NASDAQ:CSIQ) also specializes in running large-scale solar projects. Naturally, it makes an ideal candidate for renewable energy stocks except for one little detail. Throughout the outgoing year, CSIQ suffered intense volatility. It’s starting to claw its way back but a lot of damage has been done.
Unfortunately, a major consequence of the Fed’s battle against blisteringly hot inflation was the imposition of higher borrowing costs. In turn, that impacted business sentiment across the board. On the direct level, higher rates made it more onerous for companies to borrow money for expansionary initiatives and other operational needs. Downstream, consumers (both residential and commercial) had to scale back their spending.
Indeed, few other sectors suffered as much as publicly traded solar companies amid the spiked borrowing costs. However, if the Fed goes dovish, CSIQ should be one of the top green energy stocks. Effectively, the hawkish paradigm de-risked CSIQ. If this paradigm flips, CSIQ should storm higher.
And that’s what analysts anticipate, who rate shares a moderate buy with a $31.14 average price target.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
