The United Nations COP26 summit recently highlighted the fact that “human activities have caused around 1.1°C of global warming to date” and the “impacts are already being felt in every region.” Over the next few decades, countries need to work towards minimizing and potentially reversing the damage to the climate. Green energy stocks are therefore an obvious investment theme for the near-term as well as for the long-term.
In the near-term, reports indicate that renewable energy growth is poised to accelerate in 2022. One reason is supply chain constraints easing on a relative basis. Further, President Joe Biden’s administration has an ambitious plan to de-carbonize the U.S. economy. Given these factors, the outlook is bullish.
Even with green energy stocks in a long-term bull market, there are likely to be phases of price and time correction. My focus is on quality green energy stocks that are worth buying at current levels. I believe that these stocks can be performers in the coming quarters.
Let’s discuss seven green energy stocks and the factors that make them attractive investments:
- First Solar (NASDAQ:FSLR)
- Ormat Technologies (NYSE:ORA)
- Azure Power (NYSE:AZRE)
- ChargePoint Holdings (NYSE:CHPT)
- TPI Composites (NASDAQ:TPIC)
- Plug Power (NASDAQ:PLUG)
- Nio (NYSE:NIO)
Green Energy Stocks to Buy: First Solar (FSLR)
FSLR stock has been trending higher with returns of 40% in the last six months. However, after touching near-term highs of $123, the stock has witnessed some correction. This looks like a good accumulation opportunity for a renewed rally.
In terms of upside catalysts, First Solar reported expected module shipments of 11.8GW as of December 2020. The module shipment backlog increased to 16.5GW as of November 2021. However, this excludes a recent agreement with BP (NYSE:BP) to supply 5.4GW of modules between 2023 and 2025.
In addition to this backlog, the company has 21.4GW in mid to late-stage potential pipeline. As the backlog swells, First Solar looks well positioned for accelerated growth and cash flow upside.
The company reported $1.7 billion in cash and equivalents as of Q3 2021. This provides financial headroom for capital expenditure as the module backlog increases. The company has already started construction for next-generation factories in Ohio and India.
Considering the industry tailwinds and the potential growth opportunities, FSLR stock looks attractive at a forward price-to-earnings-ratio of 42.6.
Ormat Technologies (ORA)
ORA stock seems to be a name among green energy stocks that’s still flying under the radar. After an extended period of consolidation, the stock has regained positive momentum. I believe that current levels are attractive for fresh exposure.
As an overview, Ormat Technologies has a portfolio of geothermal and solar energy assets. The company’s growth plans through 2023 are a key reason to be bullish on the stock.
By the end of 2023, the company has a total portfolio target of 1,528MW to 1,648MW. This would imply a 50% growth from current levels. Clearly, the company is positioned for strong revenue and EBITDA growth in the next 24 months.
To put things into perspective, Ormat reported adjusted EBITDA of $285 million for year-to-date 2021. This would imply an annualized EBITDA potential of $380 million. For 2022, the company expects EBITDA to be in excess of $500 million. Strong growth is likely to sustain beyond 2022.
It’s also worth noting that the company reported total liquidity of $780 million as of Q3 2021. For the same period, Ormat Technologies had a net-debt-to-capitalization of 43%.
With ample financial headroom, the company can pursue aggressive organic and acquisition driven growth. For the current year, the company has already spent $171 million in merger and acquisitions.
Green Energy Stocks to Buy: Azure Power (AZRE)
India is likely to be among the biggest markets for solar energy. As of August, the country had 100.68GW of renewable energy capacity. India aims to increase this capacity to 450GW by 2030. Over 60% of the capacity is expected to be solar.
This is a key reason to be bullish on Azure Power. The company is well positioned to benefit from positive industry tailwinds in the coming decade.
Currently, Azure Power has the second largest solar portfolio in India at 6,955MW. Of this, only 2,102MW is operational. Once the current backlog is serviced, the company will be positioned to deliver robust EBITDA and cash flows.
From a financial perspective, Azure has total debt of $1.2 billion and a net-debt-to-EBITDA of 6.6. While leverage seems high, the company has steady cash flow visibility.
Recently, Azure signed a power purchase agreement with Solar Energy Corporation of India for 600MW. Azure will be supplying power for 25 years at a fixed tariff of 3.4 cents/kWh. These agreements are likely to ensure that cash flow visibility remains robust over the long-term. I therefore don’t see any debt servicing concerns.
As Azure expands presence in more states in India, it’s likely that the backlog will swell. AZRE stock therefore looks attractive after under-performing in the last 12 months.
ChargePoint Holdings (CHPT)
The global electric vehicle industry is forecasted to grow at a CAGR of 29% through 2030. This growth is unlikely without a proper charging infrastructure. CHPT stock is therefore attractive with multi-year industry tailwinds.
For Q2 2022, ChargePoint reported revenue of $56.1 million. There are two important points to note.
First, the company primarily had presence in North America. However, ChargePoint has also expanded to Europe. In the coming quarters, growth will be driven by a bigger addressable market.
Further, subscription revenue is one component of the company’s total revenue. As the number of charging stations increase, there will be a steady growth in subscription revenue. Recurring revenues will support margin and cash flow upside in the next few years.
As of July, ChargePoint also reported cash and equivalents of $618 million. There is ample financial flexibility to pursue aggressive expansion. The company already commands a leading market share in North America.
In Q2 2021, ChargePoint announced the acquisition of a European e-mobility technology provider. Additionally, the company acquired ViriCiti, which is a e-bus and commercial vehicle management provider. Acquisitions are likely to accelerate the company’s growth trajectory in the coming quarters.
Green Energy Stocks to Buy: TPI Composites (TPIC)
TPIC stock has been in a downtrend. For year-to-date 2021, the stock has slumped by 67%. It seems that the correction is overdone and a reversal rally is on the cards.
It’s worth noting that for Q3, the company reported revenue of $479.6 million. For the same period, adjusted EBITDA was at $0.2 million. On a year-on-year basis, EBITDA declined sharply. Higher raw material and logistics cost impacted margins.
However, the impact is temporary and key margins are likely to increase in 2022. It’s also worth noting that through 2024, TPI Composites has an order backlog of $3.9 billion. This provides clear revenue visibility.
Recently, the company also announced a $600 million capital investment from Oaktree. This has boosted the company’s liquidity profile. The company intends to use the liquidity buffer for potential strategic opportunities.
TPI also expects the service business to triple in size in 2021 and double in 2022. Further, the company intends to continue investing in the transportation business in the coming year and reach profitability in 2023. Therefore, there are ample catalysts for TPIC trending higher from oversold levels.
Plug Power (PLUG)
Recently, Morgan Stanley increased the price target for PLUG stock to $65. This would imply a 61% upside potential from the Dec. 1 opening price of $40.29. A key reason for this business view is potential for strong sales growth and cost reduction.
For Q3 2021, Plug reported healthy revenue growth of 34% to $144 million. Importantly, the company has revised its guidance for 2022 revenue at $900 to $925 million. With Plug on a high growth trajectory, the stock is likely to remain in an uptrend.
It’s also worth noting that as of Q3 2021, the company reported $3.4 billion in cash and equivalents. Therefore, there is ample financial flexibility to pursue aggressive organic and acquisition driven growth. As a matter of fact, the company has announced two big acquisitions in the recent past (Applied Cryo Technologies and Frames Group).
Plug Power also announced a commercial agreement with Lhyfe to develop green hydrogen plants across Europe. The partnership aims to build a 300MW hydrogen capacity by 2025.
Overall, Plug Power is positioned for strong top-line growth in the next few years. The hydrogen economy is gaining traction and Plug Power is well positioned to benefit. PLUG stock therefore worth adding to the portfolio even after an upside of 57% in the last six months.
Green Energy Stocks to Buy: Nio (NIO)
Among green energy stocks in the EV industry, Nio stock looks attractive. A key reason is that the stock has been an under-performer in the last 12 months. Even with strong fundamental developments. I believe that the stock looks poised for a reversal rally.
The first reason to like Nio is the company’s plans to launch three new models in 2022. This will help in boosting vehicle deliveries in 2022 and 2023. Further, Nio has international expansion plans and is likely to make inroads into a few European markets in the coming years. This will also support vehicle delivery growth.
From a financial perspective, Nio reported cash and equivalents of $6.7 billion as of Q3 2021. Additionally, the company raised $2.0 billion in a recent at-the-market offering. A strong cash buffer will support investment in new models and aggressive global expansion.
Nio has also witnessed steady growth in vehicle level margins. With higher deliveries, operating leverage will help in further margin expansion.
Overall, Nio stock looks attractive for a sharp reversal rally. Investors can consider fresh exposure at current levels.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.