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Think Lucid and Rivian Are Overvalued? Buy These Alternative Energy Growth Stocks Instead

By Travis Hoium, Howard Smith, and Daniel Foelber – Dec 27, 2021 at 10:00AM

Key Points

  • There's value and growth to be found with First Solar.
  • While its core business continues to grow quickly, Enphase Energy is expanding its market for solar power system solutions, including into EV charging. 
  • Brookfield Renewable stock is too cheap to ignore.

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Not all alternative energy values are stretched. Here are three great picks for investors.

The alternative energy industry has been a hot topic over the last two years with electric vehicle stocks taking a lot of the attention. But valuations for companies like Lucid Group (LCID) and Rivian Automotive (RIVN -0.66%) have gotten so high that they will have to perform perfectly to live up to expectations. 

If you're looking for great alternative energy stocks that have more history and growth behind them, three of our contributors think First Solar (FSLR 0.43%), Enphase Energy (ENPH -4.24%), and Brookfield Renewable Corporation (BEPC 1.33%) are well positioned heading into 2022. 

Solar farm in a field.

Image source: Getty Images.

Solar energy's rock

Travis Hoium (First Solar): The global solar industry continues to grow by double digits each year and in 2022 it will reach over 200 gigawatts (GW) and $170 billion of investment, according to IHS Markit. That's a massive tailwind for solar manufacturers who can make product profitably, and no one has as long a history of profitable manufacturing as First Solar

You can see below that First Solar is solidly profitable and has over $1 billion in cash on the balance sheet. And with demand up and supply tight in the solar market we should see strong economics given First Solar's integrated manufacturing and thin-film technology that isn't reliant on typical industry silicon supply chains. 

FSLR Revenue (TTM) Chart

FSLR Revenue (TTM) data by YCharts

What makes this a great growth stock is the company's plans to double production over the next three years. We should see improved economies of scale and better net margins overall as manufacturing expands. Management expects $4 to $4.60 per share in earnings this year, which at the midpoint puts the stock at a price-to-2021-earnings ratio of 20. Given the growth expected over the next three years, this could be a breakout stock in alternative energy. 

Branching out while still in growth mode

Howard Smith (Enphase Energy): Residential and commercial solar system technology company Enphase Energy fits into the growth stock category by several measures. The more than $350 million in revenue in its recently reported third quarter was 250% above its sales from just three years ago. And that growth hasn't plateaued yet. The midpoint of its fourth-quarter revenue guidance range would represent an increase of over 50% year over year.

Enphase also isn't sitting on its laurels. The company looks to be hitting its stride at the same time the solar industry is gaining tailwinds from both public and private investment. Until recently, Enphase's growth has been tied to selling its microinverters and associated system software and communication technology. Microinverters convert the DC power generated by solar panels into the AC power used in homes and businesses. Enphase has recently introduced the IQ8, its eighth-generation system.

But the company has also moved into battery storage systems, and is expanding those sales globally. Most recently, Enphase announced it is acquiring electric vehicle charging solutions company ClipperCreek. That makes sense as EV buyers, as well as businesses supporting sustainability solutions, want those vehicles to be charged using 100% renewable energy. The company also plans to integrate its new charging technology to provide the capability for "vehicle-to-home and vehicle-to-grid applications." 

Even with the expectation of strong revenue growth in the fourth quarter, it will take some time for Enphase to grow into its valuation. Its current price-to-earnings ratio is above 180. But as long as its pace of growth continues, it will justify its recent price. With the company branching into the EV charging space, it might even do it sooner than some investors think, making Enphase a quality growth name for investors looking at the alternative energy sector. 

A great blend of value, income, and growth

Daniel Foelber (Brookfield Renewable Corporation): Share prices of Brookfield Renewable are hovering around a 52-week low despite massive gains in the energy sector and the S&P 500. However, renewable energy investors know that it hasn't exactly been a great year for solar and wind energy stocks. In fact, both the Invesco Solar ETF and the First Trust Global Wind Energy ETF are negative for the year. However, it's worth mentioning that the average stock in the Invesco Solar ETF returned 14 times more than the market in 2020.

BEPC Total Return Level Chart

BEPC Total Return Level data by YCharts

In Brookfield's case, the company has suffered a few analyst downgrades and faces skepticism over whether or not it can grow its earnings and dividend at the rate it previously guided for. Brookfield increased its dividend by just 5% in 2021 and is due for an increase next quarter. That's at the low end of management's target range of 5% to 9% a year. Yet because Brookfield's stock price has fallen, it now yields an impressive 3.5%. What's more, Brookfield reiterated its goal to drive shareholder value with a total annual return of 12% to 15% for investors over the long term. Brookfield is able to make this impressive commitment due to its top-tier portfolio of renewable energy assets, which consists of a global development backlog of 36 gigawatts (GW) and an existing capacity of 20 GW. All told, Brookfield's business is doing well and is set up nicely for growth and income.

For investors who don't want to bother with hyper-growth stocks like Lucid and Rivian, Brookfield Renewable could just be the ideal antidote for an electric vehicle euphoria migraine.

Opportunities abound

Not all alternative energy stocks have wild valuations today. First Solar, Enphase Energy, and Brookfield Renewable have strong growth and decent value, which is a great combination in today's market. 

Daniel Foelber has no position in any of the stocks mentioned. Howard Smith owns Brookfield Renewable Corporation Inc. and Lucid Group, Inc. Travis Hoium owns First Solar. The Motley Fool owns and recommends Brookfield Renewable Corporation Inc. The Motley Fool recommends First Solar. The Motley Fool has a disclosure policy.

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