As the economics of solar and wind energy continue to improve, it’s getting harder for investors to overlook alternative energy investments as just a trend. Depending on where the renewable energy sources are used, they are thought to be cheaper power sources than fossil fuels. Plus, investors have power sources like hydro who play a defining role in providing base load power. Just know that if you make the right choice when it comes to energy investments, there is profit that can be made in the sector.
As a result, here is a brief overview of the top three stocks in the alternative energy sector that investors should consider for 2017.
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Vestas Wind Systems (NASDAQOTH:$VWDRY)
Contrary to popular belief, Vestas, who is a wind turbine maker, has been a much better investment over the years in comparison to solar panel makers. Over the past five years, Vestas’ shares are up 1,500%. During these five years, the current management team made a massive turnaround effort after many years of struggling under high expenses and a stubborn operating model.
Following the start of 2014, Vestas Wind Systems has grown its profits and the market has compensated investors, almost tripling the price of the stock. That said, Vestas still has the potential for more long-term growth.
First, Vestas has proven to be dependable in the wind turbine sector, as they are the only pure player up against large industrial cartels such as GE and Siemens. Despite there being a cynical atmosphere surrounding wind turbine sales, there’s no denying that the demand for electricity is only going to increase from here on out.
Plus, we’re approaching a time where it is not going to take major action from the government for wind power to continue growing as a renewable energy source. In fact, it’s getting close to grid parity without having any tax incentives. Nevertheless, even without support from the United States, the Paris climate accord is likely to aid Vesta’s outlook.
Just keep in mind if you’re looking to get into long-term alternative energy investing that it doesn’t necessarily have to be in solar, Vesta’s is also worth considering.
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First Solar (NASDAQ:$FSLR)
There are a number of investors who get thrown off of investing in solar stocks as the sector has its occasional periods of panel glut and low demand. However, it is during these periods that investors should consider investing in solar. If you’re a long-term investor looking to make energy investments, First Solar is the top choice.
Keep in mind that it is not easy to run a solar panel producing business. Solar panel technology can improve very quickly, and it requires companies to spend a boatload of money on research and development. Plus, companies have to reconfigure institutions to manufacture an upgraded panel. If that wasn’t enough, products in this industry get commoditized very quickly and companies can lose a large amount of money when the market collapses.
Taking these factors into consideration, First Solar is an attractive company because it has dealt with these cycles before while they maintained some of the best returns on invested capital that the industry has seen. Additionally, First Solar is in the best financial position in comparison to its peers with $2.1 billion in net cash — cash minus debt. The company also has a heavy balance sheet which provides the company with chances to reinvest in the industry. As we speak, First Solar is modernizing two of its institutions so it can produce its new Series 6 product.
As each day passes, solar power’s future is looking brighter than ever. Costs are improving and producers are choosing to deploy solar rather than fossil fuels. First Solar’s stock has recently been hit by a market collapse, thus making now the time to buy into this company at a reasonable discount price.
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Brookfield Renewable Partners (NYSE:$BEP)
When people think about alternative energy investing, the majority will only consider solar and wind power to be renewable energy. But, did you know that the largest source of renewable power is actually hydropower? As of right now, hydropower accounts for 16% of total electricity generation and 85% of the world’s renewable generating capacity. Plus, hydropower is going to continue to play a defining role in the growth of global electricity generation. According to the International Energy Agency, hydropower output has the capacity to double by the year 2050.
Brookfield Renewable Partners, for instance, is one of these companies that are driving growth. Currently, Renewable Partners, who is one of the biggest hydropower producers in the world, operates 260 generating stations across 82 river systems in seven separate countries. 85% of its power stems from hydro and the rest is generated by 35 wind farms that it operates across six different countries. It’s important to note that Brookfield sells 92% of its power under long-term contracts that produce calculable cash flow.
With each passing year, Brookfield Renewable Partners will deliver 70% of its cash flow back to investors. Additionally, at current prices, Brookfield’s units produce 6.2%. The remainder of the money is reinvested in its development pipeline which consists of an assortment of high-return wind and hydropower projects in Europe and Brazil. Brookfield expects these institutions to produce a fixed cash flow upon entering service, which backs its predictions for 5% to 9% annual distribution growth. When added to its current earnings, growth could produce double-digit total annual returns for investors in the long run.
All of the above makes Brookfield Renewable Partners a top choice for those wanting to start energy investing but are focused on finding a clean growth-oriented energy stock.
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