The world's population isn't getting any smaller, and the demand for energy is only expected to grow over time. For decades, energy companies have been reliable sources of return for investors; and while this is likely to continue being the case, the energy industry is changing, with new companies emerging to cash in on the demands for more renewable energy sources.
Petroleum and coal companies aren't going away just yet, but we can see an increase of money being directed to providers of solar, wind, natural gas, nuclear, and hydroelectric power. The Energy Information Institute projects that clean natural gas will provide a larger share of the nation's electricity in the coming years, along with an increase in the use of wind and solar energy and a decline in coal use. Other sources of energy—such as biomass, geothermal, hydroelectric, and tidal power—are also showing increasing promise.
There are some current headwinds to the growth of clean energy companies. When the political environment for clean energy supports things like tax credits, it helps clean energy companies, but this environment often changes. Moreover, the implementation of higher tariffs on solar panels, steel, and aluminum has brought added costs to renewable energy firms. Still, the overall demand for renewable sources of electricity in the coming years could make certain clean energy companies a good bet for investors.
Things to Consider Before Investing
If you are looking to invest in clean energy stocks, here are some things to consider:
- The energy source focus: Not all clean energy sources are the same; some are more expensive to produce than others, and some sources are more likely than others to make up a significant portion of overall energy production.
- Barriers to growth: It's important to know if a company is waiting for certain technological advances before ramping up production, or if regulations and laws are standing in their way. For example, natural gas didn't truly take off until fracking was permitted in many places across North America.
- Available capital: Developing technology and exploring new energy sources is expensive. Many new energy companies are small with good ideas but lack a robust infrastructure or financial resources.
- Competitive edge: If the company is not an established leader, make sure they have something proprietary that differentiates them from their competitors. Be confident that a company's position puts it in place to succeed versus another.
- Globalization of the company: While the current political environment isn't too friendly to renewable energy, many countries worldwide are focused on cleaning up their energy grids. Companies with a global footprint will be best positioned for growth.
5 Clean Energy Stocks to Research
Here's a look at five prominent clean energy stocks that could be worth looking into:
It's been an up and down ride for this maker of solar panels and related equipment. While it has built and operated many of the world's largest solar power plants, its operation is frequently impacted by the whims of solar power demand, pricing, and geopolitical uncertainty. First Solar made headlines as one of the worst-performing stocks during the Obama Presidency.
Still, they have sold out their orders for the next couple of years and continue to ramp up production capabilities. If the world continues to move to more solar energy usage, it should be able to cash in. The company is profitable, reporting net sales of $547 million in the third quarter of 2019. However, this represented a decrease of $38 million from the prior quarter.
It's an open-ended question as to whether we'll see a revival of nuclear energy in the United States, but BWXT Technologies, which develops and manufactures nuclear reactors and related items, got off to a good start in 2019—seeing its share price rise more than 30% since hitting a bottom at the end of December 2018—and is keeping up the momentum. In the third quarter of 2019, the company made $506 million in revenue, which is a quarterly company record and $80 million more than it made during the same quarter in 2018.
It's unclear, however, whether BWTX's good results stem from its nuclear power business. The company said it expected new revenue to come from the production of nuclear submarines and aircraft carriers, and a newly acquired medical isotope business.
Cheniere is America's leading producer of liquified natural gas. In 2018, natural gas produced 1.69 trillion kilowatt-hours of electricity in the U.S., which represented 35% of the electricity from all sources. The U.S. Energy Information Administration projects that it could top 40% by the end of 2020 as fracking operations in the U.S. and Canada have led to large quantities of natural gas to be extracted at low prices. The natural gas producer operates five liquefaction units in Louisiana, with a sixth in production.
In the third quarter of 2019, Cheniere reported revenues of $2.17 billion, up 19% from the same quarter in 2018. However, during that time, the company repurchased 2.5 million shares of its common stock for $156 million, adding to the $318 million loss it suffered.
Brookfield—which owns and manages 5316 power generating facilities in North and South America, China, India, and Europe—saw its share price increase by 20% in the first three months of 2019 after a rather dismal last half of 2018 when the lack of rain hurt operations. The lack of rain led to relatively low output from its hydroelectric dams, but the good news is that Brookfield intends to grow its holdings in wind and solar energy in the coming years—which could lead to growth in share price over time.
In the third quarter of 2019, Brookfield reported revenues of $17.875 billion, with a net income of $1.765 billion. Compared to the same time in 2018, this is a $3.017 billion increase in revenue and an $815 million increase in net income. Brookfield also has over $500 billion of assets under management.
Tesla may be best known as a carmaker, but it can also also be viewed as a clean energy company due to its investments in solar energy and battery technologies. In 2017, founder Elon Musk merged Telsa with SolarCity, the maker of residential and commercial solar panels, and a pioneer in developing battery technology that powers Tesla cars. These batteries also have a wide range of other possible uses because longer-lasting batteries promise to make electricity grids more efficient and enable more extensive use of alternative energy sources like wind and solar.
In the last quarter of 2019, Tesla reported revenues of $7.384 billion, with $6.368 coming strictly from automotives. The company's total gross profit during that time was $1.391 billion, though their automotive business reported a gross profit of $1.434 billion. Tesla has $6.3 billion in cash or cash equivalents, and the new production of its Model Y is sure to help this figure. After reporting their 2019 earnings, Tesla has seen its stock price jump to unprecedented levels.
The Bottom Line
Changes in the energy industry will create many short- and long-term opportunities. Clean energy stocks could generate big profits for investors going forward, but before you buy a stock, make sure to evaluate company infrastructure and resources, growth prospects, competitive edge, global positioning, and other factors that could impact the share price.