Despite what some experts would have you believe, the alternative energy revolution is here and shows no signs of stopping.
That's easy to miss, given the political headlines in the United States. U.S. President Donald Trump notably pulled out of the Paris Climate Agreement last year, and this year he announced tariffs on imported solar cells.
Naturally, some of the best alternative energy stocks have pulled back from their highs as investors fear the trend toward these energy sources is slowing down.
That fear, however, is overblown. In fact, some of these alternative energy stocks are now drastically undervalued.
We've got one solar energy stock today that's due for a 420% pop based on its recent performance alone. That's before you account for the growth on the way.
The fact is, tariffs or no, developers around the world want this technology. It's clean and efficient, and by now, it's often the cheapest option. Based on bids solicited last year by Xcel Energy Inc. (Nasdaq: XEL) in Colorado, for example, building and maintaining brand-new solar and wind plants was cheaper than just keeping up operations for 74% of the country's existing coal plants.
The U.S. solar tariffs, which wind down by 5% every year, may offset the lower price of solar somewhat in this country, but they won't be enough to stem the tide of solar, wind, and several other renewable sources.
Many naysayers seem to forget the world is a lot bigger than the United States. Most developed countries are shifting their energy grids without any of the restrictions the United States has put in place.
Here are some of the trends in solar energy around the world:
- Both France and Germany totaled more than one gigawatt (GW) of new solar capacity installed in 2017. France's total is now up to 7.7 GW and should reach 18 to 20 GW by 2023 - enough to power about 14 million homes.
- Spain auctioned off nearly four gigawatts in solar projects to domestic firms last summer, and the country's solar market is projected to expand 3,400% in 2018.
- According to GTM Research, Europe's total solar demand will grow 35% in 2018.
As Money Morning Global Energy Strategist Dr. Kent Moors put it, "Whether you like it or not, solar is here to stay."
We've got three picks to capitalize on the global push toward alternative energy. And what you'll see is that these are great picks because the economics favor them, regardless of concerns about the environment.
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They offer services that are efficient and cost-effective, and they don't depend on resources that are being rapidly depleted.
These are great picks in the long term, offering potential gains over 400%.
Every one of them could double your money in just a couple years.
Best Alternative Energy Stock to Buy Now, No. 3
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Ormat Technologies Inc. (NYSE: ORA) is headquartered in Nevada but mostly operates out of Israel. It provides renewable energy from more than 150 plants in 30 countries.
Its main power source is an unconventional one: the ground.
Almost every power source on earth ultimately traces its energy back to the sun in some way. But not geothermal power. That energy comes from radioactivity in the earth's core, which results in a steady source of heat that can be absorbed by fluids and pumped out of the ground through pipes to power a steam turbine.
Ground heat is conservatively about 50,000 times more abundant than oil and natural gas combined. And unlike solar and wind energy, its supply is literally rock-steady.
Geothermal plants are more cost-effective in some geographical areas than others - Iceland gets more than 25% of its energy from the ground - but their global span may surprise you. In 2017, Ormat built a 35-megawatt (MW) plant in Honduras, a 26-MW plant in Nevada, and 28 MW of a shared plant in Indonesia.
Wherever in the world geothermal infrastructure is being built, Ormat stands to benefit. So it certainly helps that the geothermal market is set to grow to $57 billion - a 68% rise - by 2024, according to Global Market Insights.
But Ormat isn't just riding the industry wave. It has made several moves recently to increase its profitability.
In 2017, the company acquired Viridity Energy Solutions Inc., a Philadelphia-based firm that develops solutions for companies to get the most out of their interactions with the electricity grid.
Plus, Ormat has ramped up its "battery storage as a service" offerings in the last year. That's another way to maximize energy efficiency and cost effectiveness for its customers.
Ormat has already seen its earnings per share (EPS) grow 37% in 2017 from the year before. At that pace, earnings would double in a little more than two years - and share price would be sure to follow.
Plus, this stock is undervalued to begin with. Its forward price/earnings ratio lags behind its industry peers by 27.5%. That translates to another 37% of growth we can expect right off the bat.
So it wouldn't be surprising if this one doubled in about a year.
Ormat is a company that's doing everything right, is a major player in a booming industry, and has slipped under Wall Street's radar. Now is the time to buy.
Best Alternative Energy Stock to Buy Now, No. 2
Our next pick, Algonquin Power & Utilities Corp. (NYSE: AQN) in Canada, has a diversified portfolio of energy sources, including hydroelectric, wind, geothermal, and solar. It operates through two subsidiaries, Liberty Power and Liberty Utilities.
As the names suggest, AQN covers both power generation and utility distribution. Liberty Utilities provides electricity, water and wastewater treatment, and natural gas for more than 762,000 Americans in 12 states.
So Algonquin has established a strong footprint in this country. Its services are among the most economically competitive in the industry, and they play a critical role in America's energy security.
That gives the company a protective moat around its U.S. business interests, regardless of any combative stance against renewable energy by the White House.
Case in point: the company's U.S. utilities customers grew by 35%, more than 100,000 in total, in 2017.
On the energy production side, Algonquin runs 35 energy production facilities, including...
- 200-MW wind farms in both Minnesota and Illinois, each of which can power nearly 80,000 homes
- A 70-MW facility in Windsor Locks, Conn., that combines natural gas and geothermal energy
- A 20-MW solar farm in Bakersfield, Calif., consisting of 80,000 photovoltaic cells and contracted to run through 2035
Sales for AQN were up a stunning 83.5% in 2017 and have increased more than four-fold since 2012. EPS have risen every year since 2012, and if projections for 2018 hold up, they will have climbed 340% in that time.
Given that it is, in part, a utilities company, you might expect AQN to be a dividend stock. Indeed, its dividend does not disappoint. A 10% boost to the dividend this year brings the yield up to 5.33%, which is 20% better than the average for utilities companies.
But that's before the share price pops.
According to FactSet, 10 out of 12 analysts call AQN a "Buy," calling for up to a 35% rise in share price. But that seems like a low projection, considering its forward price-to-earnings growth (PEG) is just 38% of the industry average.
That suggests as much as a 163% rise to go on top of that dividend. Add in the pace of its earnings growth, and this could easily be both the top dividend stock and the top performer in your portfolio.
Unless, that is, you have another Canadian energy stock in your portfolio, which happens to be our No. 1 pick in this space...
Best Alternative Energy Stock to Buy Now, No. 1
In spite of its name, Canadian Solar Inc. (Nasdaq: CSIQ) has a truly global reach. It's one of the world's top three suppliers of solar power by revenue, operating through subsidiaries in 20 countries on every continent but Antarctica.
Canadian Solar doesn't just manufacture solar PV modules, but also builds utility-scale solar farms. Most recently, the company announced the launch of a 56.3--megawatt peak (MWp) solar power project in Japan built on the site of an abandoned golf course.
That project brings CSIQ's presence in Japan to 141.9 MWp of solar capacity, part of the company's solar pipeline that totals over 11 GW. On the manufacturing side, Canadian Solar has shipped more than 70 million PV units in the past 17 years.
The stock has still pulled back about 30% from its high this year, perhaps due to fears about the political climate for solar in the United States. But, as we've already pointed out, that's a mistake. And it's an opportunity for you.
CSIQ beat earnings estimates in each of the last two quarters by an average of 27.5%. EPS rose 50% between 2016 and 2017. That was in a year in which total solar module shipments hit a record-high 6,828 MW, up 30% from the year before.
Canadian Solar is not slowing down, and some analysts are taking notice. Philip Shen at Roth Capital Partners has set a price target of $24, nearly double its current price.
But that doesn't reflect just how undervalued CSIQ is right now - something confirmed by nearly any metric.
It has a trailing P/E ratio of 4.6, compared to the industry average of 16.27. Its forward PEG ratio is 0.3, compared to an industry average 1.56. And its price-to-book ratio, which compares the stock price to the value of its assets, is just 0.6. That's less than 20% of the industry average.
So Canadian Solar's stock price could jump 253% to 420% just to be valued fairly, before accounting for the company's growth ahead.
Now's already a great time to get a piece of the solar energy boom, and Canadian Solar is available at a steep discount to boot.
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About the Author
Stephen Mack has been writing about economics and finance since 2011. He contributed material for the best-selling books Aftershock and The Aftershock Investor. He lives in Baltimore, Maryland.