Let's Shine a Light on 7 Solar Energy Stocks and ETFs

Climate change and the trend toward ESG investing have long been tailwinds for the solar sector. Now the expected passage of the Inflation Reduction Act (IRA) has added new impetus to the sector. Here, several leading investment experts and contributors to MoneyShow.com, shine a light on the improving outlook for the solar industry. Bill Selesky, Argus Research First Solar manufactures and markets a line of thin-film semiconductor photovoltaic (PV) cells and modules that convert sunlight into electricity. Its products, based on cadmium telluride technology, are used to provide environmentally friendly electric power. The company also sells PV solar systems and provides operations and maintenance services. As expected, FSLR recently posted lower sales and earnings results on a year-over-year basis. Management cited pressure on sales and earnings from higher aluminum, freight, and logistics costs. However, we continue to expect a significant improvement in earnings next year, helped by lower inflation and the resolution of supply-chain issues. We also expect new and renewal contracts to include price escalators for the rising cost of materials used in solar panel manufacturing. Overall, we see both operating performance and industry conditions improving for FSLR in the near-term and remain bullish on its prospects. Additionally, we have a favorable view of the company's solid balance sheet and strong contracted backlog, and we believe that the company is well positioned to grow earnings in a substantial way beginning in early 2023, particularly due to the increased interest in renewable energy. More to the point, we believe that the Inflation Reduction Act (IRA) will greatly benefit the clean energy industry, including solar energy providers like First Solar. FSLR mentioned it on its second-quarter conference call and noted that they thought it be a significant positive development for the industry and themselves, if passed. We believe that FSLR shares continue to offer significant value and are maintaining our buy rating with an upwardly revised target price of $123. We have a favorable view of the company's strong contracted backlog and believe that FSLR could also be an attractive acquisition target for an integrated oil company looking to diversify into renewable energy. Mike Cintolo, Cabot Top Ten Trader Enphase Energy looks like the top dog in the solar group. The company is the leading provider of microinverters for solar arrays, which offer lots of benefits compared to regular string inverters. When combined with its chip designs and decision-making software, Enphase's offering has far better performance and lower failure rates, even allowing the solar array (like one on top of a house) to acts as its own grid should the general power grid fail. That business alone has great potential, but the company has its fingers in other large cookie jars, too: The firm's advanced energy storage systems are selling like hotcakes (deliveries in Q2 up 10% from the prior quarter), and a recent acquisition has led to Enphase moving into the EV charger market (sold 8,250 chargers in Q2 with much bigger numbers to come). The industry as a whole is doing well, but that's now being supercharged by Europe, where businesses and individuals are looking for energy security anywhere they can find it; revenues soared 69% sequentially in Q2 (up 89% from a year ago), with another 40% sequential gain likely in Q3! The U.S. business is doing just fine as well, leading to a big pickup in sales growth in the quarter (68% vs. 46% in Q1) and earnings that not only doubled but crushed estimates ($1.11 per share beat by 26 cents). Analyst have ratcheted up their expectations (this and next year's estimates are both up 45 cents from before the quarterly report), and it's a good bet that even those figures will prove conservative, especially if the new green energy bill passes Congress. Technically, ENPH spent more than a year and a half gyrating in a wide range after a major top in January 2021, but the stock had shown lots of relative strength this year. More recent trading looks like the coming out party, with ENPH surging back to its old highs. Pullbacks should be buyable but use a loose leash. Shoals Technologies is at the heart of utilities' photovoltaic systems, with half the solar capacity in the U.S. using its electrical balance of systems (EBOS), the collection of the components needed to gather, regulate and transfer electricity from photovoltaic panels. The new bill would extend tax credits for solar installations out 10 years, providing lots of cost certainty for developers and helping Shoals' sales pitch. The U.S. solar market has already been growing at a 17% annual rate, while EBOS has been growing faster, at 23%, as retrofits seek to upgrade to more efficient equipment. The company's order backlog is up 67% from last year, to $302 million, about a full year's sales. 2022 should see revenue up 47% to $315 million, with earnings lifting 36% off a low base; next year's growth is expected to accelerate, and that was even before the proposal by Congress. Long term, any minimum domestic component requirement for tax credits would boost Shoals' fortunes even more. Its EBOS expertise should also give it a foothold in EV chargers, systems that also require sophisticated electrical management. All in all, it's a good solar story. Earnings are likely out in a couple of weeks. Technically, SHLS came public in January of 2021 and closed its first week at $34; nearly 10 months the later, the stock was at the same level before bear market mauled it, with shares imploding to below $10 in late April and early May. That's when the repair process started, though, with a push up to $20 in June. SHLS has since gapped above its 200-day line for the first time in months. The stock is lower priced and super volatile, but we're fine with a small buy here or (preferably) on weakness. Lillian Currens, Schaeffer Investment Research JinkoSolar Holding Co., Ltd is sitting out the rally in the alternative energy sector. In fact, the equity has been cooling off from its July 8 annual peak of $76.92, with recent pressure at its 20-day moving average. Investors shouldn't rush to sell JKS just yet though. The equity's $60 region has stepped in as a recent floor, keeping JKS at an impressive 31.6% year-to-date lead. Plus, the security just pulled back to a historically bullish trendline that could power it even higher in the coming month. The trendline in question is JinkoSolar stock's 70-day moving average. There have been five other instances within the past three years where JKS came within one standard deviation of this trendline. The solar energy stock was higher one month after 71% of these occurrences, averaging an impressive 18.2% return during that time period. From its current perch, a move of similar magnitude would put the equity at $71.29, well above recent pressure at its 20-day moving average and closer to its aforementioned early July peak. An unwinding of pessimism among options traders could also put wind at JKS' back. The security sports a 10-day put/call open interest ratio of 1.22, which sits higher than all but 8% of readings from the past year. In other words, puts have rarely been more popular of late. Speaking of options, now may be the ideal time to speculate on JKS' next move with calls. The equity's Schaeffer's Volatility Index (SVI) of 71% stands higher than only 14% of all other annual readings. This implies options traders are pricing in relatively low volatility expectations at the moment. Roger Conrad, Conrad's Utility Investor AES Corp. , a holding in our aggressive portfolio, started up 96 MW of solar/storage projects in Massachusetts and New York. And it forged a consortium with Clearway Energy to buy 7 gigawatts of solar panels annually from U.S. manufacturers starting in 2024. The power producer/utility now has a global renewable energy development pipeline of 59 GW. And in contrast to the haphazard expansion of previous decades, AES' new projects are 68% in the U.S., secured by long-term contracts with the likes of energy-hungry Amazon , which signed a 450 MW deal in California in May. AES Corp. affirmed a mid-point of $1.60 per share for its 2022 earnings guidance, as well as target 7% to 9% annual growth through 2025. That plan depends largely on successfully bringing renewable energy project backlog of 10.6 gigawatts on stream the next four years, starting with 6 GW of mostly solar and storage set to enter service by the end of 2023. Not all of these projects are in the U.S. AES, for example, has emerged as a major investor in Vietnam. That includes natural gas-fired generation and LNG imports, as well as 4 GW of proposed offshore wind. But with 1.6 GW of new power sales agreements signed this year and management expecting another 4.5 to 5.5 GW by January, there's plenty of room for more growth. Recently trading at just 13.6 times its expected next 12 months earnings, AES is a buy up to $28. Sean Brodrick, Wealth Wave The Inflation Reduction Act contains about $430 billion in new spending, a big chunk of which goes toward clean energy. And man, is that an opportunity for you! Interestingly, the bill offers generous incentives to domestic manufacturers to build renewable energy hardware in the U.S. Manufacturers would be eligible for a generous credit of 11 cents to 18 cents per watt for a solar module manufactured in a U.S.-based vertically integrated plant. Not only will that make the U.S. less dependent on China, but it could also create millions of jobs. And clean energy manufacturers could get additional tax credits if they locate projects in areas that have had a significant number of workers in the coal, oil and gas sectors since 1999, or been home to a coal mine or coal-fired power plant that was shut down. The bill also gives $1 billion in grants to improve energy efficiency in affordable housing and at least $60 billion in grants for projects like improving air quality monitoring, improving transportation and installing clean energy in poor and vulnerable communities. Of the biggest renewable energy funds, the two that have outperformed are the iShares Global Clean Energy ETF and the Invesco Solar ETF . Why are they outperforming? Probably because they have a heavier weighting to solar than the other funds. Three of ICLN's top-five holdings are solar stocks. Naturally, all of TAN's top stocks are solar. ICLN just pushed up through a line of overhead resistance. My one-year target is $31.50, a 40% move higher from recent prices. If you want to focus strictly on solar, TAN is the one for you. If you want a more balanced approach, ICLN would probably be the best choice.

Let's Shine a Light on 7 Solar Energy Stocks and ETFs

The Inflation Reduction Act contains about $430 billion in new spending, a big chunk of which goes toward clean energy.

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