Renewable energy stocks have had a resurgence in the last few months as the prospect of a more friendly presidential administration has enticed investors. But no matter who wins the White House, there are opportunities for investors in renewable energy.
We asked three of our Foolish contributors for their top picks no matter who wins the election, and SunPower (SPWR -0.77%), First Solar (FSLR 0.41%), and Brookfield Renewable (BEP 2.04%) made it to the top of the list. Here's why.
The growing residential solar business
Travis Hoium (SunPower): No matter who wins the election, the trend of more people putting solar panels on their roofs is going to continue gaining steam. As the cost of solar panels comes down and the cost of electricity goes up, residential solar companies are growing and SunPower is in a unique position to capitalize on this potentially lucrative market.
SunPower provides U.S. solar installers with the services and hardware they need to sell and install solar panels on roofs across the country. Unlike competitors like Sunrun (RUN 1.02%), the company doesn't install solar panels itself, it works through third-party dealers to do that leg work. Long term, this allows SunPower to focus on scalable services for installers and new technology like energy storage to match with solar energy installations.
The commercial market shouldn't be overlooked either, considering SunPower's No. 1 market share position. The company doesn't make a lot of money on commercial installations yet, reporting only slightly positive gross margins from the business over the last year and a half. But management thinks it can improve margins with more scale and that a 30% attach rate for energy storage could drive long-term revenue streams.
SunPower's success will be driven by homeowners and building owners adopting solar at a higher rate over the next four years. That's going to happen no matter who is president, and that's why I'm bullish on this stock in 2020.
Let it shine
Howard Smith (First Solar): Like almost every business, the solar power generation industry was impacted by the coronavirus pandemic with both customer delays and manufacturing hurdles.
First Solar, a global supplier of solar systems from modules to utility-scale projects, was no different. But its business has recovered quickly, and the company's growth is going to continue regardless of the election outcome. In fact, some believe a Joe Biden win, or Democratic gains in Congress, could accelerate an already growing solar industry.
But the company is reporting strong results even in today's environment. In its recently released third-quarter earnings, First Solar reported sales of $928 million jumped 70% versus the 2019 third quarter, and were 44% above second-quarter revenue of $642 million.
Regardless of the election outcome, companies are already setting their own sustainability objectives. Microsoft (MSFT 2.14%) has said it will be carbon negative by 2030, for example. And it has targeted the initiative "both for our direct emissions and for our entire supply and value chain," it says. The demand for renewable energy is going to continue to grow from these types of initiatives, with or without government mandates.
First Solar said in its earnings call that it was awarded a power purchase agreement (PPA) in September for a 180 megawatt solar project that will provide the clean energy needs of three General Motors (GM 2.71%) facilities in the Midwest, starting in 2023. These types of power projects are growing, and First Solar will benefit.
The company says it expects shipments at a midpoint estimate of 5.6 gigawatts (GW) for 2020, and has 6.7 GW of production planned for 2021 delivery. Demand will continue to grow, and the pace may even accelerate after the election. But no matter who wins the White House or Congress, First Solar is in a sector on the upswing.
This isn't news to investors, and shares trade for a premium. But First Solar's recent third-quarter earnings at least show that the business continues to catch up to its share price valuation.
Making money in renewables no matter who's in the White House
Jason Hall (Brookfield Renewable): As the most contentious presidential election in decades comes to a head, investors have to keep their own heads level. And instead of taking on the risk of investing in a company built on a thesis around who wins, a company like Brookfield Renewable offers a path to enormous growth no matter what happens on Nov. 3 (or in the weeks after).
The reason is simple: Renewables are cost-competitive with hydrocarbons, and in many instances the cheapest way to generate electricity. Moreover, those costs continue to fall, and gains in energy storage technology and costs are set to push renewables past hydrocarbons for even more baseload use cases.
That's a perfect storm for Brookfield. Widely considered the best at allocating capital, Brookfield has proven it can make money in renewables. As wind and solar costs continue to fall, Brookfield will be able to deploy even more renewable energy. 2020 has already proven the power of renewables, which have increased 14% this year, while fossil fuel generation has fallen 10%. Renewables are already soaking up market share.
Here's the big one: North America accounts for less than 25% of Brookfield Renewable's power generation today, down from well over 50% five years ago. Simply put, the company is built to benefit from a global tailwind of renewables investment. With a management team that's proven adept at delivering the best returns, this expanded geographical exposure should deliver continued market-beating returns for many years to come, whatever happens on Nov. 3.
Opportunities abound in renewable energy
Each of these companies operates in a very different segment of the renewable energy market, and that shows how diverse the opportunities are in the industry. Whether you're a fan of residential solar, utility-scale solar, or renewable energy asset ownership, there is a great buy for you ahead of the election.