Renewable Stocks Are Lagging Despite Big Opportunity. Should You Buy In?

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Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – continues to underperform the broader market. The theme remains down by about 2% year-to-date, compared to the broader S&P 500 which is up by close to 19% over the same period. The theme is being weighed down by rising bond yields, which have hurt futuristic and growth stocks, and some delays in the passage of the U.S. infrastructure bill, which earmarks funds to accelerate the development of renewable energy solutions.

Near-term issues aside, the theme is still worth a look for investors wanting to play the long-term transition to renewables. The Biden Administration is serious about doubling down on renewables to tackle climate change. The White House is targeting 80% renewable energy use by 2030 while looking at deriving all U.S. electricity from renewables by 2035. This would mark a massive transition in a fairly short time frame, as the U.S. presently derives just about 20% of its electricity from renewable sources. [1] This is likely to result in considerable regulatory incentives for renewables in the coming years. The estimated cost of a move toward renewable energy could stand at about $342 billion, per a report from researchers at Harvard University, Georgia Institute of Technology, and Syracuse University, translating into solid demand growth for renewable energy companies.

Within our theme Albemarle stock has been the strongest performer year-to-date, rising by about 52%. The company is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems. On the other side, Sunrun has been the weakest performer, with its stock down by about 37% year-to-date. The company designs, develops, installs, and maintains residential solar energy systems.

[8/12/2021] Renewable Stocks To Pick As IPCC Sounds Alarm Bells On Climate Change

Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – has underperformed year-to-date, declining by about 2.5% versus a 19% return on the S&P 500, although it has recovered a bit since our last update in early June when it was down by roughly 15% year-to-date. That being said, there has been a notable development that makes a compelling case for investing in this theme.

A few days ago the Intergovernmental Panel on Climate Change published an alarming report – which is seen as one of the most detailed reviews of climate change ever conducted – outlining how climate change was accelerating. For instance, the report expects that the Earth’s average temperature will reach 1.5 degrees Celsius above preindustrial levels around 2030, a decade earlier than was projected just three years ago. The Secretary-General of the United Nations has deemed the report a “code red” for humanity, noting that it should serve as a “death knell” for the fossil fuel industry.

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We believe that renewable energy companies stand to benefit considerably from the greater urgency to tackle climate change. Although returns for renewable energy stocks have been a mixed bag in recent years, due to higher costs or lower practicality versus conventional sources and significant dependence on subsidies, the sector’s time has probably come. Governments are likely to accelerate regulation favoring green energy alternatives while also investing more in renewable infrastructure. Corporates are also likely to do the same. The addressable market is also massive, as fossil fuels are a multi-trillion dollar industry.

Within our theme, Albemarle has been the strongest performer this year, with its stock rising by 60% year-to-date. The company is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems. On the other side, Sunrun – a company that designs, develops, installs, and maintains residential solar energy systems – has been the worst performer, with its stock down by about 29% year-to-date.

[6/7/2021] Even Big Oil Is Getting Serious About Renewables. Which Clean Energy Stocks Should You Pick?

Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – has underperformed year-to-date, declining by about -15% versus a 13% return on the S&P 500, as investors have rotated out of higher-growth stocks to more cyclical and value stocks to play the re-opening of the economy following Covid-19. However, this might be a good opportunity to invest in the sector. The increasing urgency to fight climate change should result in more favorable regulations, with companies also looking to increase their renewable footprint. For example, even Big Oil doesn’t want to be left out of the clean energy race. BP (NYSE: BP) intends to invest as much as $3 to $4 billion annually by 2025 building out an integrated portfolio of low carbon technologies, including renewables, bioenergy, and EV charging infrastructure. Even Exxon Mobil which has until recently been somewhat reluctant to double down on solar and wind energy, is also likely to get more serious about its low-carbon investments after activist fund Engine No. 1 – which has been pushing it to invest more in renewables and shift away from fossil fuel – won three board seats at Exxon’s XOM recent annual shareholder meeting.

Within our theme, Albemarle stock is has been the strongest performer this year, rising by 18% year-to-date. The company is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems. On the other side, Sunrun – a company that designs, develops, installs, and maintains residential solar energy systems – has been the worst performer, with its stock down by about 39% year-to-date.

[5/12/2021] Buy The Dip In Renewable Energy Stocks?

Our theme on Renewable Energy Stocks – which includes U.S.-based solar panel manufacturers, lithium miners, and hydrogen fuel cell producers – has significantly outperformed the market, returning about 159% since the end of 2019, compared to a return of 29% for the S&P 500. However, the theme has underperformed year-to-date, declining by about 19% versus an 11% return on the S&P 500, as investors have rotated out of high-growth names to more cyclical stocks to play the near-term recovery from Covid-19. That said, we think the renewable energy sector is likely to grow considerably over the coming years, driven by an increasing urgency to fight climate change and a more favorable regulatory environment in the United States. The U.S. has pledged to cut its greenhouse gas emissions in half by 2030, based on 2005 levels, while targeting net-zero emissions economy-wide by no later than 2050. Many other countries have also set similar long-term targets and this should result in a seismic shift in the $7 trillion global energy market, driving demand for renewable energy technologies. Below is a bit more about some of the companies in our theme and how they have been faring.

Albemarle is one of the world’s largest producers of lithium, which is used in the batteries that go into electric vehicles and electric storage systems. The stock is up 7.5% year-to-date.

NextEra Energy NEE the largest U.S. utility by market cap, is also the single largest owner of solar generation capacity outside China. The company is also betting big on battery storage, with plans to build nearly 700 megawatts of storage projects in California before the end of 2022. The stock is down by -2.4% year-to-date.

Bloom Energy BE sells solid oxide fuel cell generators called Bloom Energy Servers BE that use natural gas or biogas as fuel via an electrochemical process without combustion. The company also develops hydrogen fuel cells – that use only hydrogen gas as fuel. The stock is down by -27% year-to-date.

First Solar FSLR is the largest U.S.-based solar panel manufacturer. The company’s strong balance sheet and its differentiated thin-film solar panel technology, which finds application in utility-scale projects – should give it an edge as the market continues to expand. The stock is down by -28% year-to-date.

Enphase Energy ENPH primarily produces components such as power inverters and control systems for solar installations. These inverters convert the direct current produced by solar panels into the alternating current used by the grid and control the solar power system. The stock is down by -30% this year.

Sunrun is a company that designs, develops, installs, and maintains residential solar energy systems in the U.S. The company also offers battery storage systems. With the costs of rooftop solar declining and demand from residential customers rising, Sunrun has steadily grown revenues in recent years. That said, the stock’s high valuation has meant that it has corrected by almost -36% year-to-date.

See our theme on Hydrogen Economy Stocks for an overview of U.S. companies that sell hydrogen fuel cells, related renewable energy equipment, and supply hydrogen gas.

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