The Nasdaq Green Energy Index ETF (NASDAQ:QCLN) is down by approximately 25% year-over-year suggesting various buy-the-dip opportunities exist in the renewable energy space. Although renewable energy stocks typically possess high downside risk, diversification benefits can be obtained by investing in them.
Furthermore, the renewable energy arena possesses robust fundamentals. For example, the broad-based end market is set to grow at a compound annual growth rate of 8.6% until 2031. Moreover, renewable energy companies are subject to significant subsidies from governments, allowing enhanced profitability and comprehensive shareholder value.
With the aforementioned considered, here are three next-generation energy stocks to consider.
Brookfield Renewable Partners (BEP)
BEP (NYSE:BEP) stock is a personal favorite of mine. The company operates across five continents with exposure to various renewable energy endeavors, such as hydroelectric, wind, solar, distributed energy, and sustainable solutions. Therefore, it is quite clear that Brookfield Renewable Energy Partners presents investors with access to cutting-edge solutions. Moreover, Brookfield’s broad asset base translates into diversification benefits, in turn phasing out idiosyncratic risk.
Brookfield Renewable Energy Partners stock has a few pricing points that I’d like to convey. Firstly, the fund has an immaculate growth history, producing more than 10% in annual funds from operations growth via solid execution and best-in-class capital structuring. Although Brookfield Renewable Partners entered a loss in the past twelve months, the situation is set to reverse as lower implied interest rates will likely contribute to a lower cost of capital and more favorable asset performance.
Furthermore, Brookfield has exciting prospects in store. The company allocated an additional $2.2 billion in capital during its third quarter in an attempt to scale energy throughput. Brookfield is on track to push output up to 5,000 megawatts in its full year. Additionally, asset recycling is commencing as planned, with Brookfield receiving proceeds of $1.8 billion in the past 18 months, allowing it to de-risk its portfolio.
BEP stock has a price-to-book ratio of 1.33x and a dividend yield of 5.15%, illustrating its high-quality value attributes. Moreover, a lower capital structure could occur when interest rates taper, resulting in enhanced book and shareholder value alike.
BEP stock seems like an incredible deal!
First Solar Inc (FSLR)
First Solar (NASDAQ:FSLR) is well-placed in the solar industry. The company’s positioning in photovoltaic (PV) solar energy solutions means it has significant upstream representation, which generally holds higher barriers to entry than pure downstream operations. Moreover, First Solar’s early-to-market stance allows it to achieve economies of scale, thereby pricing smaller competitors out of the market. As such, I think FSLR stock’s investors could be looking at unabated long-term profitability and continuous shareholder value-additivity.
I firmly believe First Solar is set to benefit from ongoing fundamental stealth. To elaborate, First Solar recently achieved stellar third-quarter earnings, recovering from a loss in its previous year to deliver $268.4 million in profits. In addition, First Solar has stepped up its capacity by inaugurating its new manufacturing facility in India, providing it with additional capacity to achieve revenue growth. The vertically integrated facility has 3.3 gigawatts in annual nameplate capacity and will likely drop First Solar’s overall cost structure while delivering high-growth emerging market exposure. Although an isolated example, such project sequencing adds promise to FSLR stock’s secular growth prospects, concurrently lending investors perpetual growth.
Lastly, let’s look at FSLR stock from a capital markets perspective.
Key metrics suggest the stock is grossly undervalued with its price-to-earnings ratio of 20.23x at a 5-year discount worth roughly 10%. In addition, FSLR stock has reached a technical support level as its stock broke through its 50-day moving average to upend a resistance boundary.
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) is a favorite at Wells Fargo (NYSE:WFC). Michael Blum recently communicated to the public on behalf of the bank, stating that Enphase is set to benefit from a rebound in U.S. residential solar demand. An uptick in top-down factors will undoubtedly contribute to Enphase’s prospects. Moreover, the stock has numerous structural benefits that could amplify its returns.
As you’ve probably noticed by reading the introduction, Enphase is a buy-the-dip opportunity. The stock has shed more than half its value in the past year owing to sluggish financial results. Enphase has struggled with soft demand and high inventory build-up, leading to a 13% year-over-year plunge in third-quarter revenue. However, I see a turnaround on the horizon. Consumer sentiment is recovering in the U.S. and Europe, providing Enphase with systematic support. Additionally, Enphase is set to benefit from further 45X U.S. tax credits this year, which could ramp up production to coalesce with more robust demand. As such, we could see better financial performance from Enphase this year.
As mentioned before, ENPH stock has capitulated year-over-year. However, its slump has opened up a growth at a reasonable price (GARP) gap communicated by its price-to-earnings-growth ratio of 0.31x. The market could price this gap once the aforementioned fundamentals kick in.
I’m incredibly bullish on ENPH stock.
On the date of publication, Steve Booyens did not hold (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.
