It’s been a bad year for solar stocks. The reason has been weak demand in markets like the United States and Europe. Challenging macroeconomic conditions coupled with tight monetary policies have played spoilsport. However, if there is a time to buy solar stocks, it’s now.
Of course, I would not take a big plunge. Instead, I would gradually accumulate some of the best solar stocks. It’s likely that sentiments will reverse in 2024 with the prospect of multiple rate cuts to boost GDP growth.
From a long-term perspective, the outlook for the solar industry is bright. Among renewable energy sources, solar energy is the cheapest. This is the biggest catalyst for investment and potential growth in the solar energy sector through the decade. By the end of 2030, “the world is set to have manufacturing capacity for more than 1,200 gigawatts (GW) of solar panels per year.”
With an optimistic outlook, let’s talk about three solar stocks to watch for a potential reversal in 2024.
First Solar (FSLR)
First Solar (NASDAQ:FSLR) is possibly the top name among solar stocks to watch for in 2024. With significant growth potential, FSLR stock trades at an attractive forward price-earnings ratio of 13. It’s likely that there will be multiple rate cuts next year. Relatively low interest rates will benefit First Solar as customers will be more willing to buy solar energy panels on long-term leases.
Of course, First Solar already has strong revenue visibility with an order backlog of 81.8 GW through 2030. Additionally, the company has total bookings of 65.9 GW.
It’s worth noting that the company’s facility in India is expected to be completed in December. Further, Alabama and Louisiana facilities will commence production in 2024 and 2025 respectively. This will set the stage for healthy growth over the next 24 months.
First Solar also has a strong balance sheet with a cash buffer of $1.8 billion as of Q3 2023. The company is pursuing expansion at its Ohio R&D facility. High financial flexibility will allow the company to invest in innovative solar solutions.
Enphase Energy (ENPH)
At the beginning of November, Enphase Energy (NASDAQ:ENPH) stock had touched lows of $73.5. Currently, ENPH stock is higher by 83% at $135. However, if we look at the year-to-date returns, the stock is still lower by 46%. I believe that ENPH stock remains attractively valued and is poised for further rally next year.
As an overview, Enphase Energy is a leading supplier of microinverter-based solar-plus-storage systems. The company has already shipped 72 million micro-inverters globally. For Q3 2023, Enphase reported revenue of $551.1 million. For the same period, the company reported a free cash flow of $122 million and a cash buffer of $1.8 billion.
It’s worth noting that Enphase has been expanding its product portfolio for commercial and residential applications. This includes an IQ EV charger and a bi-directional EV charger. As the product portfolio expands, Enphase expects the serviceable addressable market to be $23 billion by 2025. This will translate into healthy revenue growth and cash flow upside.
SolarEdge Technologies (SEDG)
SolarEdge Technologies (NASDAQ:SEDG) stock is another name that has plunged this year. At a price-to-earnings ratio of 26, SEDG stock looks attractive and potentially poised for a strong reversal rally.
While the stock performance has been disappointing, I like SolarEdge for several reasons. First, the company is working on innovations and has 538 awarded patents and 503 additional patent applications. With a presence in 36 countries and a focus on innovation, the long-term outlook is positive.
Further, the company is going beyond commercial and residential solar solutions. The company’s future offerings include eMobility, energy storage, and utility solutions. As the product portfolio expands, it’s likely to translate into accelerated growth.
It’s worth noting that for Q3 2023, SolarEdge reported a revenue decline of 27% on a year-on-year basis to $725.3 million. This was on account of a slow market environment and excess inventory in Europe. However, the outlook for the long term remains positive and SEDG stock is likely to trend higher once key financial metrics improve.
On the date of publication, Faisal Humayun 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.
