Maybe you're an investor who has exited positions in oil stocks but wishes to retain exposure to the energy sector. Maybe you're someone who recognizes the long-term trend of renewable energy options growing in popularity. Or maybe you fit into neither of these categories, yet you're still attracted to green-power stocks.
Regardless of where you fit in, the volatility in the market (illustrated by 3% daily swings in the S&P 500 becoming commonplace) has left plenty of interesting opportunities for investors.
While investors considering alternative power have plenty of options, in these chaotic times, one of the most pressing issues is likely to be risk threshold. With this is mind, let's look at three renewable energy investments that will appeal to those willing to take on varying degrees of risk: Atlantica Yield (NASDAQ:AY), Invesco WilderHill Clean Energy ETF (NYSEMKT:PBW), and SolarEdge Technologies (NASDAQ:SEDG).
Seek yield and ye shall find
With a geographically diversified portfolio, Atlantica Yield is a yieldco with solar and wind assets that total almost 1.5 gigawatts of capacity. Although Atlantica Yield also generates revenue from electrical transmission, natural gas, and desalination assets, renewable energy represents the lion's share of the company's business.
Specifically, management estimates that 69% of its cash available for distribution from 2020 through 2024 will come from its renewable energy assets. Investors concerned that the coronavirus will affect the company's operations can take some solace from Fitch Ratings, which stated in late March, "Due to asset diversity and structure of contracts, we do not expect a significant impact from coronavirus on [Atlantica Yield's] financial performance."
In addition to investors interested in renewable energy, Atlantica Yield will also appeal to dividend investors. Currently, the company's dividend equals a 6.98% forward yield. This high yield may have some investors reaching for a red flag, but the company has clarity into its future finances thanks to the power purchase agreements in its portfolio, which have set prices for the next 18 years on average. Furthermore, management is not relying extensively on leverage; for example, it ended 2019 with a net corporate debt-to-cash available for distribution ratio of 2.9 -- meeting its target of a ratio less than 3.
A little of this, a little of that
With access to a broad range of companies affiliated with renewable energy, an exchange-traded fund like the Invesco WilderHill Clean Energy Energy ETF should appeal to investors who want minimal exposure to risk. According to Invesco, the ETF is based on the WilderHill Clean Energy Index, which "is composed of stocks of companies that are publicly traded in the United States and engaged in the business of advancement of cleaner energy and conservation."
Mitigating the risks associated with investing in a single company, the Invesco WilderHill Clean Energy ETF follows a conservative route to investing in some of the leading renewable energy companies, like Tesla (the ETF's largest current holding), solar panel manufacturer First Solar, and lithium producer Livent to name a few. Although the expense ratio of 0.70% may seem high, the ETF's distributions offset this as they represent a trailing-12-month yield of 2.28%.
Over the past three years, the ETF has outperformed the S&P 500, illustrating the growing acceptance of renewable energy in the marketplace. And the trend will likely continue in the years to come for various reasons. For example, local municipalities, states, and nations striving to meet renewable portfolio standards represent significant tailwinds, while homeowners choosing to source their power needs from solar solutions and drivers opting for electric vehicles represent other factors.
On the cutting edge
Since its founding in 2006, SolarEdge Technologies has grown to be one of the world's leading photovoltaic inverter manufacturers. And while the company's origins are tied to solar power, it now offers investors exposure to other areas of renewable energy. In January 2019, SolarEdge completed its acquisition of S.M.R.E. Spa, an Italian company that develops powertrain technology for electric vehicles.
Moreover, it has expanded into energy storage solutions with the acquisitions of Gamatronic and Kokam in 2018. The company's diversification into storage solutions provides into with a significant area for growth since the energy storage market is expected to increase 13-fold from 2018 to 2024, according to Wood Mackenzie Power & Renewable.
Shining brightly last year, SolarEdge reported a company record for revenue: $1.4 billion, representing a 52% year-over-year increase. The bottom line also glowed as SolarEdge reported net income of $145 million, about 13% higher than the $128 million that it reported in 2018. The company hasn't provided specific guidance for 2020, but industry experts foresee continued growth for the solar sector, though it may be slowed down due to the effect of the coronavirus. While SolarEdge management hasn't acknowledged any significant disruptions to the company's operations due to the pandemic, investors should recognize that this is a potential risk for the company in the coming months, suggesting the stock should be a consideration for those investors with a higher threshold for risk.
The renewable energy roundup
For investors who are seeking a wide-ranging approach to various niches of the renewable energy market, the Invesco WilderHill Clean Energy ETF is the best choice of this lot. And with the ETF trading around the midpoint of its 52-week range, now seems like a good time to open a position.
Dividend investors who are willing to take on a little more risk should strongly consider Atlantica Yield, which is trading at around 6.4 times operating cash flow, a discount to its five-year average multiple of 7.9. On the other hand, investors who are seeking a growth stock in the renewable energy sector would be better served by considering SolarEdge. Like Atlantica Yield, SolarEdge also appears to be a bargain right now, trading at 17.8 times operating cash flow, less expensive than its five-year average multiple of 19.6.