We found 3 solar stocks that you can buy and hold until 2026.
Solar Stocks are one of the more famous stock investments for traders to buy given the high-profit margin it can provide while being the cheapest form of energy source.
Over the last two years, solar producers have been plagued by supply chain disruptions, notably rising polysilicon material costs. Indeed, Rystad Energy predicted last year that rising equipment and shipping costs could force the deferral or cancellation of 56% of global utility-scale solar projects planned for 2022.
Fortunately, these difficulties are rapidly easing. Fears of a worldwide recession and low oil demand in China because of Covid outbreaks have pushed energy prices back to pre-war levels.
The same pattern is playing out in the solar sector, with Bloomberg New Energy Finance (BNEF) stating that solar material costs have plummeted by more than a third since mid-November. Wafer prices have dropped even more, with wafer costs decreasing by as much as 21% this week alone.
These changes have prompted Wall Street to increase its bets on the sector. According to Goldman Sachs, solar installations would expand at an 18% compound annual growth rate (CAGR) through 2026, fuelled in part by supporting aspects of the Inflation Reduction Act (IRA) and dropping costs.
Brian Lee, a 5-star analyst at Goldman Sachs, has identified three solar stocks as good buys with at least 50% upside potential over the next 12 months.
Another major reason why the sector is expected to remain hot for many years is that solar is by far the cheapest source of energy, with new utility-scale solar projects costing around half the price of coal and natural gas.
First Solar Inc. (NASDAQ: FSLR) is the leading solar panel developer in the United States, focusing on utility-scale panels. First Solar claims to be able to produce 20+ gigatonnes of panel capacity each year and to have spent $1.5 billion on research and development since its inception in 1999.
“FSLR now has 3GW U.S. capacity, positing the company as an immediate beneficiary of the IRA manufacturing tax credits,” according to Goldman’s Brian Lee. “FSLR anticipates reaching 7GW nameplate capacity in the United States by YE2023 and 10GW by YE2025. Assuming FSLR is eligible for the $0.17/w credits, we estimate that these credits account for 60% of FSLR’s ASP, and the 10GW capacity implies an after-tax gain of $1.4 billion per year.“
First Solar stated last year that it will construct a new solar panel manufacturing facility in the United States Southeast. In November, the business announced the location of its $1.1 billion factory in Lawrence County, Alabama.
In addition, the company intends to invest $185 million in modernizing and expanding its existing operations in Ohio. The announcement comes in the wake of the IRA Act’s passage, highlighting the impact it is anticipated to have on First Solar’s company.
Thus giving their traders an impression of their solar stock to give it a buy.
However, not every Wall Street analyst is optimistic about FSLR, particularly in the short run, with JPMorgan claiming that the easy money has already been made and GLJ Research downgraded the company from a Buy to a Sell.
Enphase Energy Inc. (NASDAQ: ENPH) is a major designer and manufacturer of solar inverters, which are essential components in all solar energy installations. Enphase has experienced consistent profitability and revenue growth over the last three years, with earnings of $634.7 million in Q3 2022 setting a quarterly record and representing an excellent 80% year-on-year growth.
Even more impressive is the fact that Enphase is not only profitable but also has one of the highest profit margins among the main solar companies, with a gross margin north of 40%.
SolarEdge Technologies (NASDAQ: SEDG) is its closest competitor in this regard, with a GM of 29%. Interestingly, SolarEdge was recently upgraded: last month, Cowen reiterated its Outperform rating on SEDG and raised its price target to $360 from $309, with analyst Jeffrey Osborne writing that SEDG is “well positioned to benefit from secular solar demand driven by policy and higher electricity rates.“
Analyst Brian Lee comments that Enphase could be an “immediate and near-term beneficiary of manufacturing credits” as a result of IRA.
“Assuming ENPH establishes US capacity, ENPH would be qualified to capture the entire amount of these credits,” management says.
Furthermore, the analyst believes ENPH is well positioned to gain from the extension of the solar ITC, which he believes would promote a more steady demand environment for both residential and commercial solar and storage systems in the US.
Array Technologies (NASDAQ: ARRY), situated near Albuquerque, New Mexico, designs and produces solar ground monitoring devices.
After the stock plummeted spectacularly following its October 2021 IPO, this company became famous for all the wrong reasons. Fortunately, the stock has recently flickered back to life, with ARRY up 31% in the last year.
Lately, ARRY seems to be getting plenty of love on Wall Street, with Brian Lee predicting it will be “an instant beneficiary of the demand tailwinds from the IRA“. Lee notably mentions the extension of the solar ITC at 30% for the next decade, which provides market confidence.
Cantor Fitzgerald graded ARRY as overweight two weeks ago:
“Given the company’s proven track record, stable supply chain, and different product offerings, we believe Array is a suitable long-term partner for the engineering, procurement, and construction firms and utility-scale solar operators,” Derek Soderberg wrote in an investment note.
Piper Sandler raised ARRY shares to Overweight from Neutral with a $28 price target, or a 53% upside, two months ago, citing an enhanced forward outlook for the renewable energy provider.
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