When ambitious plans for renewable-energy adoption were laid out before the Great Recession, there were many vocal critics. However, in the eight-year period from 2004 to 2012, electricity generation from renewable sources increased by 39%. By 2015, the consumption of solar energy is expected to more than double from 2012 levels, while wind and biodiesel will enjoy gains of 39% and 67%, respectively.
There may still be critics, but investors are now well aware that sustainable energy technologies can provide great investments. Let's survey the investing landscape for companies pursuing lucrative opportunities and developing solutions with a long-term mindset. Here are five of the best stocks you can buy in renewable energy.
NextEra Energy (NYSE:NEE)
The leading renewable-energy generator in the United States turned its 42,500 megawatts of capacity into $15.1 billion of revenue in 2013. It owned roughly 17% and 14%, respectively, of the nation's total wind and utility-scale solar capacity last year. A large presence of renewables and an absence of coal helps NextEra Energy boast SO2, NOx, and CO2 emission rates that are 97%, 80%, and 53% below the industry average, respectively.
Most important for investors, NextEra Energy has significantly outperformed the S&P 500 in the past 10 years. Throw in a dividend that has grown at a compound annual rate of 8.2% over the same time period, and it may be time to research NextEra Energy a bit further to see if it's a good fit for your portfolio.
Investors should be aware that revenues from wind energy are largely powered by the production tax credit, or PTC, which has come under increased scrutiny as wind turbine technology has matured. The PTC is the main culprit behind negative electricity prices in several geographies throughout the nation, which force baseload power generators (nuclear and coal) to produce power at a loss. Should the PTC be changed or removed, NextEra Energy could take a hit.
Renewable Energy Group (NASDAQ:REGI)
The nation's largest biodiesel producer should be considered one of the best stocks to buy because of its efficient operations, plans for future growth in advanced renewable fuels and chemicals, and the value presented to investors. The company wields over 330 million gallons of annual biodiesel and renewable diesel production capacity -- 75 million gallons of which started production earlier this week -- and a development-stage synthetic biology platform taking aim at various renewable chemicals. Meanwhile, the company has plans to add nearly 150 million gallons of annual capacity through currently planned growth projects.
Mr. Market has held shares near $10 in recent months -- well below the $16.84-per-share net equity value of the company at the end of Q2 2014. Management's no-nonsense, no-hype execution of growth projects in recent years gives me confidence in Renewable Energy Group's ability to remain a leader in its field and create new opportunities in industrial biotech applications.
Of course, investors must be aware of the near-term uncertainty in the biofuels markets, which poses the biggest risk to Renewable Energy Group and will result in volatile revenue and profit without greater product diversification. It will take the better part of a decade to really ramp revenue from the company's industrial biotech platform, which could make the stock pretty volatile, or disrespected, in the meantime.
SunPower remains the leader in high-quality, low-cost solar panels, which has catalyzed share gains in recent years. The company plans to expand annual manufacturing capacity by 350 MW, with a new facility in the Philippines to capture future opportunities in both residential solar and utility-scale projects -- both of which hint that the growth is far from over.
For instance, SunPower has over 818 MW of utility-scale projects sold or under contract and an additional 323 MW under executed power purchase agreements. That excludes additional projects under development that don't have purchase agreements in place. Meanwhile, the residential solar business, conducted via long-term leases, doesn't yet represent a meaningful revenue stream, but it does represent a great growth opportunity.
Despite the growth potential, SunPower remains a highly volatile stock. There's a good amount of uncertainty in the residential solar market -- dangling a product, service, and financial vehicle in front of homeowners doesn't guarantee success. And there's always the unknown of Chinese solar manufacturing capacity, although fellow Fool Travis Hoium has raised questions about the East's ability to compete on quality.
Tesla Motors (NASDAQ:TSLA)
What good is a list of the best stocks to buy in renewable energy if it excludes the company taking aim at the fossil fuel-dependent transportation industry? Tesla Motors has captured the imagination of investors and intrigue of customers through its efficient automobile designs, an innovative sales model, and a targeted build-out of necessary supporting infrastructure. The business strategy is solid, too, which calls for initially manufacturing high-end luxury car models to fund the development of future mass-market products and stem losses in the early years.
Tesla Motors has made great strides in proving its business and technology strategies in the past several years. Sales have surged from $413 million in 2012 to nearly $1.39 billion through the first half of 2014, while operating losses have shrunk from $394 million to just $91 million in the same time span -- proof that the business is scalable. It may take a few more years to develop a sustainable business and swipe substantial risks off the table, but there are few companies as courageous as this electric-vehicle maker.
Similar to SunPower, Tesla Motors remains a highly volatile stock despite its growth potential and importance to the future of its industry (transportation in this case). There are good reasons for doubt, too, as the company's market valuation greatly exceeds that of other automakers on just about any metric, ranging from automobile production volume to annual revenue. Investors that are averse to risk may consider other equities that aren't so dependent on hope and hype.
The French energy giant doesn't make this list for its robust oil and gas operations or assets, but rather for its commitment to long-term businesses and technologies that have the potential to significantly alter the energy landscape. For instance, Total has owned nearly two-thirds of SunPower since 2011. The company also owns 18% of synthetic biology pioneer Amyris, which could one day enable a cost-competitive renewable alternative for jet and diesel fuels. In addition, Total owns major equity stakes in other solar and renewable fuel projects and companies.
Renewable technologies have a long road ahead before they provide a meaningful share of the world's energy needs. That will require significant quantities of two things: time and money. Check and check. Total has an eye on the ultra-long term (projects and platforms that could take decades to be successful), which is a rarity for major energy companies. That focus should allow the company to remain an energy leader for years into the future.
Total will almost certainly be a leader in the future of renewable energy, but it can be difficult to bag homerun investments with large companies. Considering that oil and gas revenues will continue to drive revenue and profit for the company, investors uncomfortable with a multi-decade investing horizon could be disappointed.
What to look for in renewable-energy stocks
Renewable energy is here to stay, but that also makes it a tricky field to invest in. Companies without stable and feasible business and technology strategies could promote themselves as the next big thing to capture investors, only to go bust in the long run. Similarly, each renewable energy market and investment presents a different risk and reward profile. Investors should consider their own personal preferences and needs before building a position in any of the companies above.
What do all of these companies have in common? They're committed to long-term, sustainable business and technology strategies that provide value to their customers and shun the incremental, step-wise gains of their respective industries. While they've already proved that renewable-energy investments can be profitable on a project, consumer, and investor basis; future growth plans could enable further gains for investors. That's why these may be five of the best stocks to buy and research in renewable energy.
Maxx Chatsko owns shares of Amyris and Renewable Energy Group. Check out his personal portfolio, CAPS page, and previous writing for The Motley Fool, or his work with SynBioBeta to keep up with developments in the synthetic biology field.
The Motley Fool recommends Tesla Motors and Total and owns shares of Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.