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Investing in Solar Energy Stocks

Updated: May 18, 2021, 2:50 p.m.

The solar industry builds and installs devices to capture the energy from the sun and convert it into electric power. The sector encompasses a wide variety of companies with the following functions:

  • Manufacturing components and panels
  • Installing solar panels
  • Operating solar energy generating facilities

These companies are working together to help transition the global economy away from fossil fuels and toward renewable energy sources. It will take trillions of dollars and many years to complete this conversion, which makes solar energy a compelling opportunity for long-term investors.

Best solar stocks to invest in

The solar energy market is accelerating. According to the National Renewable Energy Laboratory, the industry will add 10 gigawatts (GW) of new solar capacity annually through 2022. That should increase to an average of 18 to 20 GW per year in the 2023-2030 timeframe. Powering that surge is a dramatic decline in costs, which has solar on track to be the lowest-cost source of bulk power in the coming years. While several large companies focus on solar energy and should benefit from its expansion, not all have strategies designed to increase value for their shareholders. These three companies seem most worthy of investors’ consideration:

The following three solar stocks, however, are worthy of consideration:

1. First Solar

2. Brookfield Renewable

  • Operates solar-energy-generating facilities, wind farms, and hydroelectric power plants

3. SolarEdge Technologies

  • Manufactures power optimizers for solar panels

Read on to find out why these solar stocks shine brightly in this rapidly expanding industry.

Large solar panel energy farm

Image Source: Getty Images

Solar feels to me like the ultimate form of energy we'll be using on this planet for as long as we're around. It's taken us a long time to get there and there's still a lot of technological improvements that we need in things like storage to make it work for everybody. But it seems blindingly obvious to me that, looking backwards from the future, we'll say the sun made so much sense that it would be the biggest form of energy generation for us on Earth.

David Gardner, cofounder, The Motley Fool

1. First Solar

First Solar (NASDAQ:FSLR) is a global leader in developing solar energy solutions. It not only manufactures and sells solar modules, but also designs, constructs, and sells solar power systems and provides operations and maintenance services.

One thing that sets First Solar apart from other solar panel makers is its focus on manufacturing a proprietary advanced thin-film module. In less-than-ideal conditions like low light and warm weather, these panels perform better than competing ones made with silicon. They’re also larger in size, which helps reduce the cost per watt. Those factors make them ideal for utility-scale solar energy projects.

First Solar further sets itself apart from its peers in the solar sector by having one of the strongest balance sheets. It routinely has more cash than debt, which gives it the financial flexibility to continue executing its strategy to build thin-film solar modules for utility-scale customers. These factors put First Solar in an excellent position to thrive as the solar industry continues expanding.

2. Brookfield Renewable

Brookfield Renewable (NYSE:BEP)(NYSE:BEPC) is a renewable energy yieldco created by leading alternative asset manager Brookfield Asset Management (NYSE:BAM). The company generates renewable energy that it sells to end users under long-term power purchase agreements, which provide it with steady cash flow to pay attractively yielding dividends.

Brookfield Renewable is a global leader in hydroelectric power plants, which it compliments with rapidly expanding wind and solar energy platforms. However, the company believes that within the next decade, solar could make up the majority of its production capacity. That’s not because it doesn’t believe in wind or hydro, but because it sees greater opportunity in solar power.

Brookfield’s solar-powered growth has it on track to expand its cash flow per share at an 11% to 16% annual rate through 2025. That should support 5% to 9% yearly increases in its high-yielding dividend. Those two factors should enable Brookfield Renewable to generate attractive total returns in the coming years.

3. SolarEdge Technologies

SolarEdge Technologies (NASDAQ:SEDG) manufactures power optimizers and inverters used to convert the sun's energy into usable electricity. These components have improved the way that solar panels convert DC power produced by the sun into the AC electricity used by the electrical grid. A system that utilizes SolarEdge's power optimizers will cost less than one that, for example, uses a microinverter built by a company like Enphase Energy (NASDAQ:ENPH), with minimal efficiency loss.

SolarEdge's focus on manufacturing low-cost power optimizers has enabled it to win market share from its competitors as solar project developers focused on cost. The company has also invested money to acquire and develop new products in the energy storage and energy management spaces, as well as smart modules to help grow its average revenue per installation.

The company complements its leading market position with a strong, cash-rich balance sheet. That provides it with the financial flexibility to invest in expanding its manufacturing capacity and technological lead over its competitors. Those factors set SolarEdge Technologies up for success in implementing its plan to expand its reach in the fast-growing solar sector.

Solar energy’s future has never looked brighter

Solar energy was already on track for significant growth before the election of Joe Biden as the 46th president of the United States. However, with his pledge to put the U.S. on a path toward an emissions-free future, the new administration could supercharge the sector’s expansion. That means the industry could grow even faster in the coming years than the projections suggest. That’s why investors should consider investing in solar energy stocks, with this trio of companies among the best options thanks to strong financial profiles and visible growth outlooks.

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