Please ensure Javascript is enabled for purposes of website accessibility

3 Solar Stocks to Buy for 2018

By Travis Hoium - Dec 20, 2017 at 8:05AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The solar industry's recovery should continue for investors in 2018, especially if the Trump administration doesn't kneecap U.S. manufacturers.

The solar industry has finally reached the point where some clear leaders are emerging and developing technology and scale advantages that will be hard to disrupt. Leaders haven't yet begun to display the profitability they might someday, but it looks like the days of bleeding red ink may soon be over. 

Not all parts of the solar industry are worth investing in, but I think SunPower (SPWR -0.48%), First Solar (FSLR -1.05%), and TerraForm Power (TERP) stand above the rest

Utility-scale solar installation in the desert.

Image source: First Solar.

SunPower

There aren't many companies that have had a more volatile last few years than SunPower. The company's high-efficiency solar panels have come under pressure as Asian commodity solar panels cut costs and often were sold at a loss. The company had to shut down some production late last year, and it's taken time for upgrades to high-efficiency (X-Series) and commodity cell-based (P-Series) production to ramp up. 

2018 should be a year when SunPower starts to put some of its legacy challenges behind it and shows a steadier state of operations for investors. Residential and commercial solar sales have already stabilized and are beginning to show gross margins approaching 20% combined. Utility sales will take longer to recover, but P-Series production is already at 400 MW in Mexico and 1.2 GW is ramping in China, most of which will be sold along with trackers and other components in Oasis system sales. 

SunPower is also putting most of its large-scale project development business in its past. 8point3 Energy Partners (CAFD) is up for sale and the company should sell most of the legacy projects on its balance sheet by early 2018. After that, it will focus on component sales to utilities and system and component sales to residential and commercial markets. That's where SunPower can leverage its superior technology, and as it does, I think the stock's current run higher will continue. 

First Solar

If SunPower is the volatile solar manufacturer, First Solar is the stable one. The company has long had a better balance sheet and higher profitability than competitors and 2017 was no different. Production, sales, and earnings all beat expectations and First Solar had so much demand that it delayed upgrading some of its Series 4 production to Series 6, a product that will be launched in 2018. 

What's a little odd about 2018 is that it'll be a down year as production upgrades take place. Even after the year and spending more than $1 billion on production upgrades, management says it will end 2018 with $1.6 billion to $1.8 billion in net cash. That's a balance sheet no other solar company can match, making this one of the safest solar stocks on the market. 

TerraForm Power

It's been two years since TerraForm Power went through its own upheaval, nearly going bankrupt along with SunEdison. But now the yieldco is controlled by Brookfield Asset Management and has a bright future ahead. 

TerraForm Power has assets that will generate about $95 million to $115 million in cash available for distribution (CAFD) in 2017, but Brookfield is providing $500 million in financing and 3,500 MW of projects for the yieldco to acquire new growth projects. That should keep the company growing and churning out an ever-higher dividend. 

That dividend currently yields 6% at the projected payout of $0.75 for 2018. With the strong yield, stable assets, and a sponsor with a history of value creation in renewable energy, this is a great solar stock for investors who don't want to take the risk of owning a solar manufacturer. 

2018 should be better for solar stocks

Solar stocks have been in an odd position for years, battling falling panel prices from Chinese panels and changing policies in the U.S. that have affected their business. But 2018 should bring a level of stability as international markets have become more predictable and manufacturers like First Solar and SunPower are booking sales years into the future. 

Investors are pricing in high tariffs from the Trump administration, but if proposed tariffs in the U.S. come back lower than expected, we could see solar stocks pop in 2018. That could be the macro driver for the industry, but no matter what happens, I think SunPower, First Solar, and TerraForm Power are positioned to be leading solar stocks. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

First Solar, Inc. Stock Quote
First Solar, Inc.
FSLR
$65.77 (-1.05%) $0.70
SunPower Corporation Stock Quote
SunPower Corporation
SPWR
$16.60 (-0.48%) $0.08
TerraForm Power Stock Quote
TerraForm Power
TERP
8point3 Energy Partners LP Stock Quote
8point3 Energy Partners LP
CAFD

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
330%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/22/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.