The clean energy sector has been shaken by recent election results.
The iShares Global Clean Energy ETF (ICLN), a measure of the industry's health, fell over 6% as markets reacted swiftly to a political climate that seems less supportive of renewable energy initiatives. Despite this, some investors were "buying the dip" on Thursday, with ICLN rebounding by nearly 2%.
As AI and other technologies escalate energy demands, fossil fuels, clean energy, and nuclear options remain on the table for the next four years.
In the coming weeks, we'll explore these options, but today, let's focus on whether clean energy is a viable investment now and how to profit from the sector’s outlook.
Clean energy stocks soared after Joe Biden's inauguration in 2020, climbing 186% in just 13 months, driven by massive proposed investments in the sector.
These included over $30 billion for grid upgrades and nearly $80 billion in clean energy manufacturing from the Inflation Reduction Act and the Bipartisan Infrastructure Law.
Ironically, the sector's spike occurred before these initiatives were funded, with investors "buying the rumor."
Since reaching highs in 2021, clean energy stocks have plummeted by more than 61%, with further declines likely.
The anticipated policies of a second Trump administration could further decelerate efforts against climate change, potentially rolling back federal clean energy support. This is concerning for an industry reliant on significant government investment.
The Outlook Turns Even More Bearish 2024 has been tough for clean energy stocks.
The top 23 industry companies have dropped an average of 32%.
Only six are up for the year, while the remaining 17 have plummeted by an average of 47%.
SunPower's bankruptcy in August underscores the industry's distress.
With 18 of the 23 stocks below their 50-day moving averages and trending down, the sector's prospects look bleak as the Trump administration prepares to take office.
This sector is currently a "sell."
Investors tempted by "cheap stocks" should beware; these stocks will decline further.
Those holding stocks like First Solar (FSLR), JinkoSolar (JKS), and SunRun (RUN) should consider stop-loss strategies to preserve capital.
The bearish outlook offers an opportunity for options traders.
The declining trend of ICLN suggests it could fall below $10 in the next 3-6 months, a potential 20% drop.
Simple strategies like buying puts on ICLN, especially with longer-dated expirations into 2025, are likely to be profitable. This is a simple way to play the unfriendly trend that will continue for the Clean Energy industry.
