Long-term investing requires long-term thinking, and that's isn't necessarily easy in the energy industry. Some seemingly steady energy stocks are actually very risky -- energy sources like coal are in a structural decline, and critical fuels like oil see threats from electric vehicles on the horizon.
Finding stocks that can survive the transition to renewable energy and thrive is critical for investors. And I think if you're investing in renewable energy stocks today, Hannon Armstrong (NYSE:HASI), SunPower (NASDAQ:SPWR), and Bloom Energy (NYSE:BE) are great stocks to start with.
1. The company behind the scenes in renewable energy
Hannon Armstrong isn't going to be a company that gets many headlines in the energy industry. It's primarily a finance company, putting money into both equity and debt to back renewable energy projects. But that's why it's a great investment today.
As the energy industry changes, Hannon Armstrong can adapt and move investments into the most advantageous part of the market. Sometimes that might be energy efficiency projects at government buildings, in other cases it's owning the land under wind turbines, or it could be owning residential solar assets, as it does as part of a partnership with SunPower.
What investors get from Hannon Armstrong is a dividend of 2.2%, which should grow each year as the company generates a return on what it's investing. And with billions of dollars every year going into renewable energy projects, this is one of the companies that I think will slowly and steadily build a great renewable energy business.
2. The solar play
SunPower is a solar company that's focused on creating a platform that residential and commercial solar developers can build on. The company has put together the tools to allow customers to build their own rooftop solar systems, generating great leads for SunPower's installation partners. And its platform provides everything installers need, from solar panels to racking to monitoring systems. But what makes this an exciting stock long-term is energy storage.
Companies are starting to include energy storage with both residential and commercial solar projects, and SunPower is leading the way, with about 30% of commercial customers now including storage and a new residential project growing in states like California. As these assets are installed, SunPower bids their capacity into electricity markets, providing a positive revenue stream to both SunPower and the end customers. You can imagine that as the company installs more and more solar energy systems, it can aggregate them into bigger "virtual power plants", as the systems are known, and add multiple value streams to partners like utilities.
SunPower's business isn't consistently profitable yet, but it's gaining market share and margins are improving. As the adoption of solar power increases in the coming years and energy storage becomes a bigger piece of the energy infrastructure, I think this is a company that will grow and outperform the market overall.
3. Betting on a hydrogen future
One of the flaws of renewable energy has always been that there hasn't been a way to store energy efficiently for later usage. That may mean saving solar energy for use during the winter months, or using it as fuel for vehicles and ships around the world.
That's where hydrogen could create exciting opportunities, and Bloom Energy is leading the way. The company's core business is making fuel cells for commercial buildings and utilities. These fuel cells have normally used natural gas or another fuel to produce energy, but now the company is building them to operate on clean hydrogen, and for good reason.
Bloom Energy is introducing an industrial electrolyzer that can convert wind and solar electricity and water into hydrogen. This can be a clean source of fuel for Bloom's fuel cell servers around the world. The company is also finding new use cases for those servers in places like large shipping vessels, which it is investigating in a partnership with Samsung Heavy Industries.
There are so many options for hydrogen in the $2+ trillion energy market that Bloom Energy is too good to pass up.
Energy stocks built to disrupt the status quo
You'll notice that each of these energy stocks is in a growing market and could disrupt entrenched competitors like big oil stocks and utilities. That's for good reason. Energy is being disrupted by renewable energy and innovative new technologies like solar and hydrogen. Investors will want to ride that wave, and Hannon Armstrong, SunPower, and Bloom Energy are great ways to do it.