In this article, we will look at the 7 Most Undervalued Renewable Energy Stocks To Buy Now.
Renewable Energy Market to Reach $1.55 Trillion by 2028
The renewable energy industry has emerged as a leading sector globally, with a diverse range of options, including wind, hydropower, biofuel, and solar energy. According to a report by Business Research Company, the global renewable energy market is estimated to be worth $1.10 trillion in 2024 and is projected to grow to $1.55 trillion by 2028 at a CAGR of 8.8%. The sector’s growth can be attributed to increasing environmental concerns and stringent regulations in developed countries, leading to a surge in installed capacity for renewable energy sources. Additionally, the rising power demand and energy consumption have also driven the growth of the renewable energy market.
The U.S. Energy Information Administration (EIA) forecasts renewable energy deployment to grow by 17% in 2024, potentially reaching 42 GW and contributing to nearly a quarter of the nation’s electricity generation. However, this growth may be accompanied by a temporary increase in renewable energy costs due to high financing, labor, and land expenses. Despite this, tax credits from the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) are likely to keep solar and wind energy competitive. The solar and storage markets are expected to expand further, driven by tax incentives and government support, particularly through programs like the DOE’s Loans Program Office. On the other hand, the wind and hydrogen energy sectors may face challenges. Wind energy is experiencing higher deployment costs and delays in obtaining approvals, while hydrogen energy struggles due to a lack of government incentive programs to support its development.
Inflation Reduction Act Has Made U.S. a Leader in Renewable Energy
In an interview on September 24, U.S. Energy Secretary Jennifer Granholm highlighted the success of the Inflation Reduction Act, which has made the U.S. an attractive destination for renewable energy developers and manufacturers. Since the passage of the act, over 800 factories have announced plans to come to the U.S. or expand their operations in the country, creating over 400,000 jobs in the renewable energy sector. Granholm attributed this growth to the public-private partnership created by the President’s Invest in America agenda, which has led to a record $500 billion worth of investment in the renewable energy space.
Granholm said that everyone is closely watching the current tensions in the Middle East and that the potential for a wider regional escalation is a concern. However, Granholm emphasized that the U.S. has been investing in renewable energy and has seen record amounts of oil, gas, and renewable energy production, making the country less vulnerable to global energy disruptions.
Granholm noted that there is bipartisan support for the renewable energy initiatives, with 18 Republicans signing a letter urging against rolling back the policies. She also pointed out that the investment in renewable energy is not just a Democratic or Republican issue, but a national imperative, and that undoing the progress made so far would be “political malpractice.”
Granholm also discussed the growing need for power due to the growth of data centers and generative AI, which is estimated to increase power demand by 15% within the next ten years. She emphasized that the U.S. is adding record amounts of renewable power to the grid and that the hyperscalers for big data centers are committed to using renewable energy. Granholm also highlighted the potential for small nuclear modular reactors to play a role in meeting the growing power demand, particularly in partnership with data centers.
As the world continues to grapple with the challenges of climate change, the growth of the renewable energy market is a sought-after development. Governments around the world implementing policies to support the transition to low-carbon energy, and the renewable energy industry is poised for significant growth in the coming years. With that in context let’s take a look at the 7 most undervalued renewable energy stocks to buy now.
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Our Methodology
For this article, we scanned Clean Energy ETFs plus online rankings to compile an initial list of 30 renewable energy stocks. From that list, we screened for companies that are trading at a forward P/E ratio of under 20 as of October 6. From that list, we narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7 Most Undervalued Renewable Energy Stocks To Buy Now
7. Array Technologies (NASDAQ:ARRY)
Number of Hedge Fund Investors: 30
Forward P/E Ratio as of October 6: 9.80
Array Technologies (NASDAQ:ARRY) is a manufacturer and supplier of single-axis trackers for solar panels, which enable solar panels to follow the sun’s movement and improve energy efficiency and production by maximizing exposure to sunlight.
In Q1, Array Technologies (NASDAQ:ARRY) introduced the Hail Alert Response system, which uses advanced weather forecast algorithms to automatically stow solar panels approximately thirty minutes before a predicted hail event to minimize any potential damage and downtime. This system requires a SmarTrack Controller and protects solar assets from severe weather conditions.
Array Technologies (NASDAQ:ARRY) has formed a strategic partnership with Alpuco in Saudi Arabia, aimed at sourcing materials locally. This collaboration will support the company to capitalize on domestic incentives and solidify its position in the Middle Eastern market, which is poised for significant growth as the region is expected to add nearly 70 GW of photovoltaic capacity by 2030. This partnership has the potential to drive Array Technologies’ (NASDAQ:ARRY) market expansion and increase its order book.
Array Technologies’ (NASDAQ:ARRY) forward PE of 9.80, represents a 51.51% discount to its sector to the sector median of 20.21. Industry analysts have reached a consensus on the stock’s Buy rating, with an average target price of $12.72 that suggests a 65.41% upside potential from its current levels. As of the second quarter, 30 hedge funds have invested a total of $396.77 million in the company’s stocks.
6. Edison International (NYSE:EIX)
Number of Hedge Fund Investors: 32
Forward P/E Ratio as of October 6: 17.41
As the parent company of Southern California Edison, Edison International (NYSE:EIX) is one of the largest electric utilities in the United States, serving approximately 15 million residents across a vast 50,000-square-mile area in Central, Coastal, and Southern California. With a strong presence in the region, the company is well-positioned to meet the growing electricity demands driven by California’s consistent economic growth. Edison International has made significant investments in renewable energy, with 33.2% of Southern California Edison’s electricity sources coming from renewable power sources as of 2022. The company aims to achieve 100% carbon-free power distribution by 2045.
In the second quarter, Edison International (NYSE:EIX) reported revenue of $4.324 billion, representing a 9.5% increase year-over-year, while net income surged 27.4% to $572 million. The company is poised to meet growing energy demands through its planned load expansion, with projected annual growth of 2% to 3% through 2028, and a 35% growth over the next decade.
Edison International (NYSE:EIX) is leveraging artificial intelligence (AI) to enhance grid performance and predict power loads more accurately. Additionally, the company has filed a General Rate Case (GRC) application with the California Public Utilities Commission (CPUC) to increase its base revenue from $8.4 billion to $10.27 billion. A proposed decision is expected in the first quarter of 2025, with new rates set to take effect in January 2025, enabling the company to invest in infrastructure and load growth, further solidifying its market position.
Edison International’s (NYSE:EIX) stock is trading at 17.41 times this year’s earnings estimate, a 3% discount to its sector median of 17.96. Analysts expect the company to deliver a 4% earnings growth this year and have a consensus Buy rating on the stock, with an average price target of $88.60, indicating a modest 2.7% upside from current levels. As of the second quarter, 32 hedge funds hold stakes in the company, with a total investment of $1.39 billion.