Investing in Solar Energy Stocks

The solar energy industry builds and installs devices to capture energy from the sun and convert it into electric power. Companies in the industry are working to transition the global economy from fossil fuels such as oil and natural gas to renewable energy sources. It will take trillions of dollars and many years to complete the transition, making the solar energy industry a compelling opportunity for long-term investors.

The sector encompasses a wide variety of companies with the following functions:

Best solar stocks to invest in 2024

Solar energy represents an enormous market opportunity. The U.S. needs to invest an estimated $1.2 trillion through 2050 on solar energy developments alone to decarbonize the economy. Meanwhile, the global investment opportunity for solar is even larger.

Many companies focus on solar energy and should benefit from the sector’s growth. However, not all have strategies designed to enhance value for their shareholders. Three solar energy stocks that stand out as the most worthy of investors’ consideration are:

First Solar

• (FSLR -3.57%)
• Manufactures thin-film solar panels.

Brookfield Renewable

• (BEP -2.52%) and (BEPC -1.57%)
• Operates solar energy generating facilities, wind farms, and hydroelectric power plants.

SolarEdge Technologies

• (SEDG -7.51%)
• Manufactures power optimizers for solar panels.

Here's why these solar stocks shine brightly in this rapidly expanding industry:

1. First Solar

First Solar is a global leader in developing solar energy solutions. It develops, manufactures, and sells advanced solar modules.

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 such as low light and hot weather, its panels perform better than competing silicon modules. 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 also distinguishes itself from its peers in the solar sector by having one of the strongest balance sheets. It routinely has more cash than debt, giving it the financial flexibility to continue executing its strategy of developing and building thin-film solar modules for utility-scale customers, including expanding its manufacturing capacity. First Solar is in an excellent position to thrive as the solar industry continues expanding.

First Solar also has lots of growth lined up. The company has sold out its manufacturing capacity through 2024 and has signed sales contracts through 2026. It’s investing heavily to expand its solar panel manufacturing capacity to capitalize on the sector’s growth. The investments should enable First Solar to expand its revenue and earnings at rapid rates in the coming years.

2. Brookfield Renewable

Brookfield Renewable is a renewable energy yieldco created by leading alternative asset manager Brookfield Asset Management (BAM -2.13%) . The energy company generates renewable energy that it sells under long-term power purchase agreements. Brookfield’s business model provides it with steady cash flow to pay an attractive dividend yield, hence the yieldco designation.

Brookfield Renewable has a diversified renewable energy portfolio. It’s a global leader in hydroelectric power plants. It complements those facilities with rapidly expanding onshore and offshore wind energy, utility scale and distributed generation (e.g., rooftop) solar, and energy storage platforms.

The clean energy company believes solar could make up the majority of its production capacity within the next decade -- not because it doesn’t see a bright future for wind or hydro, but because it sees greater opportunity in solar. Declining costs are making solar development projects increasingly lucrative.

Brookfield has made several acquisitions in recent years to increase its solar energy development capabilities. In 2022, it purchased Urban Grid, a leading developer of utility-scale solar and energy storage projects in the U.S. The acquisition tripled its U.S. renewable energy development pipeline.

Brookfield’s solar-powered development pipeline has it on track to expand cash flow per share at a 6% to 11% annual rate through 2026. On top of that, it sees as much as 9% of additional growth potential per year from future acquisitions, which should support the company’s plan to increase its high-yielding dividend by 5% to 9%. Its dividend growth makes it one of the top renewable energy dividend stocks. Meanwhile, its overall combination of growth and income should enable Brookfield Renewable to generate attractive total returns in the coming years.

3. SolarEdge Technologies

SolarEdge Technologies manufactures power optimizers and inverters used to convert the sun's energy into electricity. Its components have improved the way 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 uses a microinverter built by a company such as Enphase Energy (ENPH -3.89%), for example, and with minimal efficiency loss.

SolarEdge's focus on manufacturing low-cost power optimizers has enabled it to win market share from competitors as solar project developers emphasize 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 increase its average revenue per installation.

SolarEdge complements its leading market position with a strong, cash-rich balance sheet, giving it the financial flexibility to invest in expanding its manufacturing capacity and its technological lead over competitors.

Its strong balance sheet has also given SolarEdge the flexibility to expand into other smart energy market segments. The company has made investments and acquisitions in storage, electric vehicle (EV) charging, batteries, uninterruptible power supply (UPS) systems, EV powertrains, and grid services solutions. The initiatives could accelerate its growth in the coming years and have set SolarEdge up for success as it works to capitalize on the fast-growing clean energy sector.

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Solar energy’s future has never looked brighter

Solar energy was already on track for significant growth before the election of President Joe Biden. However, with his pledge to put the U.S. on a path to an emissions-free future, his administration could supercharge the sector’s expansion. He has set a bold goal for the U.S. to generate 100% carbon-free electricity by 2035. Biden is also proposing extending tax credits and making direct investments to accelerate the shift to clean energy. Congress has already passed two bills during his administration that could help encourage the development of renewable energy in the country.

As a result, the solar industry could grow even faster in the coming years than current projections suggest. Its potential growth is another reason why investors should consider investing in solar energy stocks. First Solar, Brookfield Renewable, and SolarEdge Technologies stand out as being among the best options, thanks to strong financial profiles and visible growth outlooks.