Solar power is one of the most promising sources of clean and renewable energy for the future. It harnesses the abundant and free energy from the sun and converts it into electricity that can power homes, businesses and even vehicles. Solar power has many advantages over fossil fuels, such as reducing greenhouse gas emissions, enhancing energy security and creating jobs and economic opportunities. Governments across the world have put into place market mechanisms to incentivize the production of solar energy. For example, the Inflation Reduction Act, passed by the Biden Administration in August 2022, was a massive legislative breakthrough that will support a number of renewable energy companies and initiatives, including solar, in the United States for the next few years. Having said that, what does that mean for solar stocks?
Investing in solar power is not without challenges. The solar industry is highly competitive, dynamic and subject to various risks such as regulatory uncertainty, technological disruption and market volatility. Therefore, investors need to be selective and well-informed when choosing the best solar stocks to buy.
In this article, we will look at three solar stocks that could offer attractive returns for investors in 2023 and beyond.
First Solar logo on smartphone in front of computer screen with graphs. FSLR stock
Source: IgorGolovniov / Shutterstock.com
It’s difficult to discuss solar power stocks without mentioning First Solar (NASDAQ:FSLR). The solar panel manufacturer has a few things going for it. One, being vertically integrated allows First Solar to control each step of the production process, from manufacturing the solar panels to providing end-to-end solar systems. This vertical integration allows the company to maintain quality control, reduce costs and ensure a seamless process for their customers on a global scale. Second, First Solar focuses on unique thin-film technology that offers lower costs and higher efficiency than conventional silicon-based panels. The company also offers a variety of engineering, procurement and construction (EPC) services for utility-scale solar projects around the globe.
First Solar has been benefiting from strong demand for its products and services, especially in the United States, where it has secured several large contracts from major utilities and corporations. The company also stands to gain from the Inflation Reduction Act of August 2022, which extended the federal investment tax credit (ITC) for solar projects at 26% through 2025. However, in First Solar’s first quarter earnings report in 2023, the company missed earnings by a wide margin due to weakening sales, but the company expected most revenues to be generated in the second half of 2023 as production ramped up on its key solar panels.
In the second quarter, First Solar reported stronger year-over-year revenue growth and EPS, indicating there is still a lot of demand out there for its core products. For investors wanting to make a promising solar stock investment in 2023, First Solar has the sound fundamentals and broader market tailwinds to lift its stock even higher.
Enphase Energy (ENPH)
Smartphone with logo of American company company Enphase Energy Inc. (ENPH) on screen in front of business website. Focus on left of phone display. Unmodified photo.
Source: T. Schneider / Shutterstock.com
Enphase Energy (NASDAQ:ENPH) is not a manufacturer of solar panels; rather, the company does something much less ‘fancy’. In particular, Enphase is a provider of microinverters, which are devices that convert direct current from solar panels into alternating current for use in homes and businesses. Along with microinverters, the solar tech company offers a range of software and hardware solutions for monitoring and managing solar systems. This also includes battery storage and energy management products.
Having inserted itself into an invariably important part of the solar energy space, Enphase Energy has experienced rapid growth in recent years. Since 2018, Enphase has been able to grow revenues in the high double digits. In 2021 and 2022, revenue grew by 78% and 69%, respectively. However, in 2023, the solar equipment firm has hit a speed bump. Energy prices in the U.S. have largely declined from their highs last year, and this has softened demand for solar as an energy alternative, at least in the short-term. These demand headwinds have, in turn, made investors skittish and Enphase shares are trading down nearly 51% year-to-date.
When investors are feeling pessimistic about the short-term prospects of a business model, it could be a good opportunity for patient investors to invest. The macroeconomic environment has slowed demand for a number of companies with great business models. Enphase Energy happens to be one of them; and investors should start to pay close attention to solar stocks like this one.
SolarEdge Technologies (SEDG)
the solar edge logo on an iPhone. SEDG stock
Source: rafapress / Shutterstock.com
SolarEdge Technologies (NASDAQ:SEDG) is another leading provider of inverters and “smart energy” power optimizers for solar systems, as well as software and hardware solutions for monitoring and controlling solar energy production and consumption. The solar tech provider also offers products for smart energy management, such as battery storage, electric vehicle chargers, smart meters and load controllers. SolarEdge Technologies has been enjoying strong growth in both residential and commercial segments, as well as in international markets such as Europe and Australia
Similar to Enphase Energy, SolarEdge’s YoY revenue growth reached high double-digit figures in almost every year since 2016. Of course, some of that had to do with strong demand coming from consumers and incentivized by governments, but that growth was also fomented by geopolitical machinations out of the company’s purview. However, demand for solar energy in 2023 appears to be softening. As mentioned before, this phenomenon is most likely related to a broader slump in energy prices in the U.S. Thankfully, initiatives to transition to renewable sources of energy are long-term commitments and are not likely to go away, which should make solar stocks like SolarEdge Technologies attractive in these moments of investor hesitation.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.
