There has been a lot of hype around renewable energy stocks in 2020 as the market starts to realize their incredible growth potential. And even unprofitable companies like Fuel Cell Energy (FCEL -4.69%) have had incredible runs, despite operations not improving noticeably. In that sense, stocks like Fuel Cell Energy look like a renewable energy bubble.
But a lot of renewable energy companies are growing, and are even value stocks for long-term investors. Three of our Foolish contributors got together and outlined why JinkoSolar (JKS 0.76%), Brookfield Renewable Partners (BEP -0.17%), and TPI Composites (TPIC -8.89%) are much better buys than a stock like Fuel Cell Energy today.
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A solar manufacturer you can count on
Travis Hoium (JinkoSolar): The solar manufacturing business has been beaten up over the last decade as companies raced to build out scale and lower costs. A lot of companies didn't make it through the gauntlet, but one that did is JinkoSolar. The company is expecting to ship between 18 gigawatts (GW) and 20 GW of solar panels this year, or about one in every six solar panels installed this year.
What's encouraging for investors today is that revenue is rising, margins and earnings are increasing, and there are only a few companies with the scale needed to compete globally in the solar panel market. JinkoSolar is one of the few that should remain long term.
JKS Revenue (TTM) data by YCharts
There will be ebbs and flows in JinkoSolar's earnings depending on solar panel demand, but now that solar is competitive with fossil fuels in most of the world, I expect demand to increase. That will be a tailwind for the manufacturer, which is arguably a value stock trading at just 14 times trailing earnings. If it can continue to grow revenue and push margins higher, this could be a great stock for renewable energy investors over the next decade.
A leader in the renewables race
Howard Smith (Brookfield Renewable Partners): Investors have been making bets on many companies in the renewable energy sector recently, driving share prices up sharply. Some of this will turn out to be justified, as the world continues to move to more solar and wind power generation and electric- or fuel cell-powered transportation.
But it will take time for the winners to grow to levels investors are pricing in, and the losers in the race to renewables will have people wondering how they could have paid so much. A better way to invest right now is to join with a name like Brookfield Renewable Partners, which doesn't take on the risk of which electric-vehicle maker or solar panel manufacturer comes out on top.
Brookfield Renewable invests in solar, wind, and hydroelectric power generation projects. Its portfolio consists of over 5,300 power-generating facilities worldwide. The company says it aims to provide 12% to 15% overall annual returns by working with governments and businesses around the world to "transition to a greener future."
The growth initiatives the company highlighted in its recent third-quarter earnings release show how the value in the business will continue to increase. Third-quarter accomplishments included expanding its wind and solar presence in North America and Europe by acquiring TerraForm Power, closing on the purchase of a 1,200 megawatt (MW) solar project in Brazil, an offer to privatize a European renewable business that will allow it to participate in both onshore and offshore wind projects, and final funding for a strategic relationship to invest in Canadian hydroelectric facilities.
An investor looking to take part in the energy industry transformation toward renewables doesn't have to make a risky bet on a high-priced name. A better way to get market-beating returns is to invest with a name like Brookfield Renewable Partners that will benefit no matter which electric vehicle or fuel-cell company wins in the end.
The winds have changed
Jason Hall (TPI Composites): TPI Composites, which manufactures wind turbine blades for some of the biggest wind turbine manufacturers in the world, has been on my radar for a few years. I only made it part of my portfolio this year and started beating the drum about this great company in early September. Since then, shares are already up 36%, continuing an incredible run that has the stock up 130% in 2020.
Yet even with shares up so sharply this year, it's a winner that I think will keep winning. In short, it's absolutely worth buying right now.
TPI reported earnings in early November, and the results were fantastic. Sales increased 24%, while last year's $4.6 million loss turned into a $42 million profit. The company opened three more manufacturing lines, and said it had $5.1 billion in revenue from existing long-term supply agreements with its wind turbine manufacturer customers already in place through 2024.
It's looking more and more like there are two big trends in TPI's favor. First is the long-term growth in demand for renewable energy. TPI is helping its customers lower the capital costs of wind turbines and make them more efficient, making wind more competitive with hydrocarbons, while also helping its customers be more competitive in more markets. Second, it looks like its customers are increasingly favorable on using TPI for more of their expansion, versus spending capital to increase their own capacity.
At recent prices, TPI shares trade for less than one times trailing sales, and about 15 times management guidance for adjusted EBITDA. Even with the huge gains, TPI shares trade for a reasonable price.
Don't speculate in renewable energy
What you'll see that each of these stocks has in common is stable operations and consistent revenue and cash flow. Investors don't have to speculate to find great renewable energy stocks. There are great operators available today, and these are three of our favorites.
