How to invest in solar stocks in 2020. My top solar panel stock picks for 2020.
While you might think that investing in solar stocks is pretty straight forward, the truth is that there are many different solar stocks out there that have very different business models. So in this video, we will do three things. First, we will discuss the four main categories that solar stocks fall into. Second, we will discuss which one of these four categories is the most promising from an investment standpoint. And third, I will narrow it down to a few select stocks that you can add to your portfolio today.
So why should you add solar stocks to your portfolio? Well the main reason you should add them to your portfolio is because of their projected growth. In fact, solar is expected to grow the fastest out of all the other renewable energy sources from now until 2050. And if we look at the historical growth rates of solar panel output in the US. We can see that large scale production jumped from 423 thousand megawatt hours up to 69 million megawatt hours by 2019; which is a 16,000% jump. Also if we look at residential solar output, we can see that it has grown from 11.2 million megawatt hours in 2014 all the way to 35 million megawatt hours by 2019. Which is a 25% annualized return. So as you can see this is an area that has grown tremendously over the past couple of years and looks to continue doing so for the foreseeable future. The other exciting thing about solar stocks is that solar only generated about 1.5% of electricity in the US in 2018. So there is still a lot of room for solar stocks to continue to grow.
The first category is solar panel makers. These are companies that design, manufacture, and sell the solar panels themselves. Two big solar stocks that fall into this category are First solar and sunpower. But these are not the only two and there are many different solar panel manufacturers in countries throughout the world.
The next category for solar stocks are companies that operate as the solar panel installers. These are companies that work with both residential and business customers to sell, install, and maintain solar panel systems. In 2016 Tesla acquired the largest solar panel installer in the US at the time, Solar City. But from 2016 to now, Tesla has actually managed to decrease the number of solar panels they install each year. In fact, there were reports that Solar City was already in financial trouble before Tesla acquired them. Which led to fraud accusations by Tesla investors against Elon Musk and Tesla’s Management for approving the deal while hiding Solar City’s poor financials. So all you need to know is that Tesla is not the largest solar installer in the US anymore. The largest are now Sunrun and Vivint. However it was announced just a couple of weeks ago that Sunrun is going to buy Vivint for roughly 1.5 billion dollars. Which would strengthen Sunrun’s position as the market leader.
The next category is something called a yieldco. Yieldcos are companies that operate utility-scale energy projects that set up long term contracts to supply electricity to utility companies. However recently, utility companies have opted to not partner with yieldcos and instead finance and build their own renewable energy projects themselves. This is because large utility companies like Nextera energy have access to capital with very low interest rates. So, I would recommend going with a utility company that invests in renewable energy projects instead of investing in a standalone yieldco. And I would especially recommend this option if you are older and nearing retirement for example, and you are focusing on stocks with reliable dividend payouts. Nextera energy would probably be my top pick.
This leaves solar panel component makers like enphase and solaredge the most promising investment options. This is because both solaredge and enphase command over 30 percent gross profit margins on their power optimizers and microinverters and have very low operating costs.
Enphase released a new set of initiatives recently that they say will help grow the company by 400% by 2022. These initiatives include a renewed focus on European markets, a new battery system called encharge, a microinverter aimed at commercial applications, and an all in one solar plus storage system aimed at low income households in Asia.
Solaredge is also a very well run company with innovative technology and has new products of its own that it will look towards to generate growth. One of those products is the Energy Hub inverter that can redirect excess DC current into a battery for later use. It can also charge your car or your generator, and can be used with as many batteries as your home may require. So this will help solaredge gain an edge over enphase. In fact, Solaredge commanded 60% of the U.S. residential inverter market at the end of 2019. And it’s products most likely play a big hand in that.