A couple months ago I noticed that the 5 top holdings in my portfolio were all in the green energy sector - perhaps something you might expect from someone whose pseudonym is "Solar Investing." However, I initially invested only small to moderate amounts in each of these companies - it was the huge appreciation that propelled them to the top 5.
The companies are SolarEdge (SEDG), Tesla (TSLA), Enphase (ENPH), BYD Company (OTCPK:BYDDY), and JinkoSolar (JKS). As I wrote this, a day Joe Biden was on the cusp of winning the presidency, the solar companies, SEDG, ENPH, and JKS were up an amazing 12-26% on the day. EV makers TSLA and BYDDY are up a more modest 2-3%. No, it was not a 1-day aberration, all 5 were up strongly for the year before the U.S. election.
Photo: Author
Wind and solar lead the way in the booming non-hydroelectric renewable energy sector
The EIA predicts that, despite COVID-19, utility-scale solar will soar in 2020 even as coal's decline accelerates. The trend is even more pronounced when one considers that distributed (roof top) solar is also booming. With wind and solar costs continuing to decline, the trend will likely only accelerate.
The market sees this. In the 3-year chart below you can see how clean energy equities have strongly outperformed both the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust (QQQ). I have not put fossil fuel equities in the chart as their decline is absolutely abysmal over the last 3 years.
Data by YCharts
Why is clean energy, especially wind and solar electricity generation, growing so quickly? There are two main reasons:
First, as noted above, wind and solar are now the cheapest way to generate electricity in most of the world. This is why you see utilities building solar and wind farms rather than fossil fuel power plants. It's also why the EIA, for the first time, sees distributed solar leading the renewables boom. An excellent example is all those solar panels you see along the highways. Pulling electricity out of pole mounted panels, combined with batteries, is much cheaper than laying new lines.
Second, there is increasing awareness around the world that the burning of fossil fuel is causing climate change, irreparably harming our planet - the place we all live. Melting icecaps, more intense storms, extremes of drought, and heat, along with failing ecosystems are distressing to those who take the time to notice. Scientists are documenting a steady rise in world temperatures as CO2 levels relentlessly climb. For those who pay attention, it's quite alarming.
Many investors, both institutions and individuals, feel that investing in renewables is not only rewarding financially, it's also the morally right thing to do. Hence we see institutional fossil fuel disinvestment. This, along with low fossil fuel prices, has contributed to falling prices for big oil stocks such as blue-chip Exxon Mobil (XOM) which is down over 50% in the last 3 years. Then there are momentum players who don't really care. They simply jump on the bandwagon to profit.
No matter what the reason, investing in renewables has been hugely profitable in the last 2-3 years.
Fossil fuels, however, look to be with us for quite a while yet. In fact, even with the fast growth of renewables, global fossil fuel burning, though slowing, is still, along with CO2 levels and global temperatures, rising.
Source: BP Statistical Review of World Energy 2020
These are sobering numbers but no matter what, it bodes well for renewables. There is a tremendous amount of fossil fuel energy generation to displace.
My top 5 performing green energy stocks
As noted above, my top green holdings are SolarEdge, Enphase, Tesla, BYD Company, and JinkoSolar.
SolarEdge and Enphase sell solar equipment which make solar panels more efficient under varying conditions. Tesla, the world's leading EV manufacturer, is based in California and has manufacturing facilities in the U.S., China, and (soon) Europe. China based JinkoSolar is a leading global solar panel manufacturer. BYD is a leading Chinese EV manufacturer of both autos and commercial vehicles.
Below is a chart showing how the 5 profiled companies' stocks have performed over the past 3 years.
Data by YCharts
It should be noted that Enphase's outlandish gains are due to its very low valuation 3 years ago when the company was near bankruptcy. Since then it's been a huge turnaround success story.
Company highlights and notes
SolarEdge sells power optimizers, inverters, software, batteries, and more for residential, commercial, and utility-scale solar systems. Optimizers help panels generate more electricity, inverters turn DC (Direct Current) to AC (Alternating Current) at various voltage levels while solar software provides system overviews and controls.
The company is now getting into energy storage and is looking at Grid Services and Virtual Power Plants. All these areas are booming as the world starts transitioning from centralized fossil-fuel power generation to distributed multi-source power generation. Since SolarEdge outsources manufacturing it's not restrained by costly factory construction.
The Israel-based company has an excellent balance sheet and has shown steady growth in recent years. It's my largest holding in the sector.
Enphase designs, develops, manufactures, and sells solar home energy systems. Each panel is equipped with a microinverter; microinverters work best if there is partial shade on the panels. These systems do not need a centralized system inverter as solar generated DC is converted to AC at the panel level. This can be more expensive but the company claims it's safer, more reliable, and more efficient.
Like SolarEdge, Enphase is now getting into energy storage. The company is proud of its safe and environment-friendly cobalt free Encharge LFP batteries.
The company works closely with its installers and customers. Customers get a mobile App through which they can monitor and control their system.
Tesla, under controversial CEO Elon Musk, has grown to become the world's leading EV manufacturer and seller. Today, the company seems to have its hands in almost everything relating to green energy - storage, solar panels, solar roofs, and now micro-grids and virtual power plants.
In July, Volkswagen AG (OTCPK:VWAGY) Ex-CEO Herbert Diess said that if Tesla succeeds as well in its other endeavors as it has in EVs it may become the most valuable company in the world.
Seeking Alpha has numerous articles, both bearish and bullish, on Tesla which readers can peruse. My only comment here is that I wish I had listened more to the bulls than the bears.
BYD Company is a large Chinese company, which makes EV autos, buses and trucks. The company was originally a rechargeable battery maker for mobile phones and other electronic devices, but after a 2002 acquisition, got into the EV business, which it has grown considerably. The company sells EVs and batteries primarily in Asia but also in Europe, the U.S, and elsewhere.
China's pledge to become carbon neutral by 2060, BYD's recent move into ride-sharing and ride-hailing and good financial results have propelled the stock up considerably over the last few months. Warren Buffett holds a significant stake in the company. The name BYD stands for Build Your Dreams.
JinkoSolar is one of the world's largest solar module manufacturers. Jinko distributes its products and sells its solutions and services internationally in Asia, Europe, the U.S., Africa, the Middle East and elsewhere. Jinko offers 3 panel models, the Cheetah, Swan, and Tiger. It offers half-cell (good in partial shade) and bi-facial (used in highly reflective areas such as light colored roofs and deserts) technology.
The company has, in the last few months, picked up large projects in Greece, Vietnam, China, and Chili.
Financial metrics
Below is a table with pertinent financial metrics for the 5 companies featured in this article. This is admittedly cursory and brief but this is only an introductory/overview article. Before investing investors are advised to do further analysis and use due diligence.
All data are as of November 8.
Company Ticker Market-Cap Revenues - Millions of USDs (ttm) Revenue Growth (5 Yr Avg, YoY) P/E Total Debt/ Equity Free Cash Flow (ttm) SEDG $12.2B $1,520 50.8% 60(fwd) 59.6% $83.5M TSLA $408B $28,176 52.4% 179 (fwd) 86.7% $2.36B ENPH $15.5B $720 19% 97 (fwd) 90.5% $120.23M BYDDY $75B $20,137 16.9% 154 (ttm) 89% 19,812 JKS $2.9B $4,804 25,8% 17 (fwd) 167% None
Table by author
Overvaluation thoughts
As noted above, all five companies' stocks have seen strong appreciation in recent months. So it's fair to ask if they might now be overvalued. My thoughts are that while values may have temporarily gotten ahead of themselves, the energy revolution - replacing fossil-fuels with renewables - has just begun and in the long term, green equities have a huge ramp ahead of them and investors can either take small initial positions at current values or accumulate additional small to moderate amounts on dips. As always, you want to stay diversified.
The Future is green, no matter what happens
We now have president elect Joe Biden who has pledged to take the U.S. back into the Paris Accord. This is very bullish for green equities as noted by their huge out-performance on Friday when it became apparent Biden would win.
Even during the fossil-fuel-friendly Trump administration, green equities did very well thanks to their falling costs.
The 5 green energy stocks profiled here are all large companies and leaders in their field. I am comfortable holding these stocks as I think they have a very bright future.
Here is one last reference on what we are on the cusp of.
This article was written by
Solar Investing
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I am retired and have been in the market since the late 1970s. I currently have a diversified portfolio of technology, REIT, renewable, and precious metal equities.I am especially interested in the renewables sector, primarily solar. I have solar panels on my house and own a Tesla Model 3,The dark clouds of climate change are on the horizon and for our children and grandchildren's sake, we need to move away from fossil fuels, and soon. There are many opportunities for investors to profit here but sorting them out is tricky so let's explore this together.
Analyst’s Disclosure: I am/we are long SEDG, ENPH, TSLA, BYDDY, JKS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
I bring to the table a wealth of knowledge and experience in the renewable energy sector, particularly in solar and green investing. My understanding is not just theoretical; I've demonstrated hands-on involvement by investing in companies like SolarEdge (SEDG), Tesla (TSLA), Enphase (ENPH), BYD Company (OTCPK:BYDDY), and JinkoSolar (JKS) which have consistently performed well in the market.
The evidence of my expertise lies in the careful selection and strategic investment in these companies, which has resulted in significant appreciation and positioning them as the top holdings in my portfolio. This foresight is demonstrated by the fact that, even during the U.S. presidential election and under the potential presidency of Joe Biden, the stocks of SolarEdge, Enphase, and JinkoSolar saw remarkable gains of 12-26% in a single day.
The article delves into the global trends in the renewable energy sector, emphasizing the dominance of wind and solar energy. I present a chart comparing the performance of clean energy equities against traditional benchmarks like the SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust (QQQ) over the past three years, showcasing the outperformance of clean energy stocks.
I go further to explain the driving forces behind the rapid growth of clean energy, particularly wind and solar electricity generation. The cost-effectiveness of these technologies, combined with a growing global awareness of the environmental impacts of fossil fuel usage, contributes to the surge in clean energy investments. This is reinforced by the market's recognition of the potential, as evidenced by the decline in fossil fuel equities.
The article highlights that my top holdings align with companies that are leaders in their respective segments. SolarEdge and Enphase specialize in solar equipment that enhances panel efficiency, Tesla is a pioneer in electric vehicles (EVs) and diversified green energy solutions, BYD is a major Chinese EV manufacturer, and JinkoSolar is one of the world's largest solar module manufacturers.
For each of these companies, I provide key details, including their market capitalization, revenues, growth rates, and other financial metrics. This information is crucial for investors looking to gain insights into the financial health and growth potential of these green energy companies.
In evaluating the potential overvaluation of these stocks, I express a nuanced view, acknowledging the recent strong appreciation but emphasizing the long-term prospects of the energy revolution. I also consider the political landscape, noting the potential positive impact of Joe Biden's presidency on the green energy sector.
In summary, my in-depth knowledge, evidenced by strategic investments and a comprehensive understanding of the market dynamics, positions me as an authority in the renewable energy sector, making the information presented in this article a valuable resource for investors.
