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.
5. Shoals Technologies (NASDAQ:SHLS)
Number of Hedge Fund Investors: 33
Forward P/E Ratio as of October 6: 13.90
Shoals Technologies (NASDAQ:SHLS) is a leading player in the solar energy and electric vehicle sectors, with a strong presence in the market. The company has successfully deployed its products in over 62 GW of solar systems worldwide and boasts an impressive intellectual property portfolio with more than 66 patents. Shoals Technologies is particularly renowned for its innovative electrical balance of systems (EBOS) solutions, which have set a new industry standard.
Shoals Technologies’ (NASDAQ:SHLS) groundbreaking Big Lead Assembly (BLA) System has revolutionized solar installation technology. By integrating multiple components into a single unit, the BLA System reduces installation costs by 43% and material costs by 20%. This innovative solution not only enhances efficiency but also improves safety, setting a new benchmark for EBOS solutions.
Shoals Technologies (NASDAQ:SHLS) has developed a range of innovative solutions to streamline solar and electric vehicle (EV) installations. The company’s Interconnect System simplifies the connection of solar panels to the grid, minimizing the need for specialized labor and enhancing overall efficiency. Additionally, Shoals Technologies’ patented connectors and wire harnesses with in-line fuses offer a cost-effective solution for solar installations, reducing production and transportation costs.
Shoals Technologies (NASDAQ:SHLS) is currently trading at an attractive price-to-earnings (P/E) ratio of 13.90, representing a 31.19% discount compared to the sector median of 20.21. With a consensus Buy rating from industry analysts, the stock has a target price of $8.84, which represents a 53.11% upside potential from its current level. As of the second quarter, 33 hedge funds hold a stake in the company, with a combined value of $208.17 million.
4. American Electric Power (NASDAQ:AEP)
Number of Hedge Fund Investors: 35
Forward P/E Ratio as of October 6: 17.82
As one of the largest electric utilities in the United States, American Electric Power (NASDAQ:AEP) operates an extensive network of power plants, transmission lines, and distribution infrastructure, serving over 5 million customers across 11 states.
American Electric Power’s (NASDAQ:AEP) North Central wind project is one of the largest single-site wind farms in North America and provides 1,484 megawatts of energy to serve customers in Arkansas, Louisiana, and Oklahoma. American Electric Power (NASDAQ:AEP) is poised to capitalize on this trend, with plans to expand its renewable energy business at an annual growth rate of 15-20%. American Electric Power (NASDAQ:AEP) plans to add up to 8,982 megawatts of wind energy and up to 7,470 megawatts of solar energy to its portfolio by 2033.
The company’s strategic focus on renewable energy investments has positioned it as a major player in the rapidly evolving energy landscape, particularly as electricity demand surges due to the growth of generative AI and data centers. According to the International Energy Agency (IEA), global electricity demand is expected to increase by 4% in 2025, driven in part by tech giants like Amazon, Microsoft, Google, and Meta, which are investing heavily in data center infrastructure. In fact, data centers are projected to account for nearly 30% of electricity growth, with estimated investments in generative AI-related data centers reaching $2 trillion over the next five years, as estimated by Blackstone.
American Electric Power (NASDAQ:AEP) is trading 17.82 times its forward year’s earnings. The company is expected to achieve 6.8% earnings growth this year. As of the second quarter, 35 hedge funds have invested a total of $1.57 billion in the company’s stocks.
3. Nextracker (NASDAQ:NXT)
Number of Hedge Fund Investors: 39
Forward P/E Ratio as of October 6: 11.73
Nextracker (NASDAQ:NXT) is a leading solar tracker company, that manufactures one of the world’s most advanced single-axis solar trackers for both utility-scale and distributed generation projects.
In February, Nextracker’s (NASDAQ:NXT) NX Horizon-XTR all-terrain tracker was selected by ACWA Power and Larsen & Toubro for a 1.17 GW solar power project in Saudi Arabia. Nextracker (NASDAQ:NXT) will supply its innovative tracker systems and will collaborate with local partners in Saudi Arabia to provide raw materials and manufacturing support for the trackers. This substantial 1.17 GW order brings Nextracker’s total capacity of smart solar trackers in the Middle East, India, and Africa region to over 10 GW, encompassing both operational and currently under-development projects.
According to Precedence Research, the global solar tracker market is valued at $7.01 billion in 2024 and is forecasted to reach around $71.81 billion by 2034, expanding at a compound annual growth rate (CAGR) of 26.2%. Nextracker (NASDAQ:NXT) is well-positioned to capitalize on the increasing demand for solar tracking solutions.
Nextracker (NASDAQ:NXT) is trading at an attractive valuation, the company’s stock trades at a forward price-to-earnings ratio of 11.73, representing a 41.94% discount compared to the sector median of 20.21.
2. Chevron (NYSE:CVX)
Number of Hedge Fund Investors: 64
Forward P/E Ratio as of October 6: 13.83
Chevron (NYSE:CVX) is a leading global player in oil and gas exploration, production, and refining, with a diversified portfolio that also includes investments in renewable energy technologies and services. The company is actively developing its renewable energy capabilities, with notable projects including a 16.5 MW wind farm in Wyoming that powers 13,000 homes annually and a 49 MW geothermal facility in California that supplies energy to 40,000 homes each year. Additionally, Chevron (NYSE:CVX) offers renewable diesel blends containing 6-20% renewable content at its California terminals, sourced from materials such as vegetable oils and animal fats.
In a significant breakthrough, Chevron (NYSE:CVX) successfully ran a gas turbine on a 60% hydrogen fuel blend for several days in May. The turbine, located near the company’s Pipeline & Power Business Unit facility in California, provides power and steam for nearby oil fields. This achievement has important implications for reducing carbon emissions in industrial processes, such as manufacturing and data centers, and could accelerate the adoption of hydrogen technologies.
Chevron’s (NYSE:CVX) stock is trading 13.83 times this year’s earnings estimate, With a consensus Buy rating from industry analysts, the stock has a target price of $169.39, which represents an 11.65% upside potential from its current level. As of the second quarter, the company’s stock is held by 66 hedge funds with a total value of $122.40 billion.
1. First Solar (NASDAQ:FSLR)
Number of Hedge Fund Investors: 66
Forward P/E Ratio as of October 6: 17.12
First Solar (NASDAQ:FSLR), a leading manufacturer of thin-film photovoltaic (PV) solar panels, has established a global presence with operations in Vietnam and Malaysia, catering to large-scale solar power projects.
The company’s Q2 financials were impressive, with revenue surging 24.7% to $1.01 billion and EBITDA soaring 95% year-over-year to $470 million, driven by higher selling prices and a gross margin of 49.4%. A robust order backlog extending through 2030, fueled by strong demand for its products, further solidifies its market position.
First Solar (NASDAQ:FSLR) is in the process of patenting its innovative TOPCon technology, which is expected to enhance the efficiency of its solar panels. If successful, the patent could unlock a new revenue stream through royalties, bolstering the company’s financials and providing a potential long-term growth driver. Additionally, the company has completed an upgrade at its Ohio facility and is expanding its US production capacity with new sites in Louisiana and Alabama, poised to meet the growing demand for solar energy.
First Solar (NASDAQ:FSLR) is currently undervalued, with a price-to-earnings ratio of 17.12, representing a 28.93% discount to the sector median of 24.09. Analysts expect the company to achieve 54.78% earnings growth in this year and are bullish on the stock. The stock has a consensus Buy rating and an average price target of $293.73, which implies a 23.85% increase from its current levels. 66 hedge funds own stakes in the company worth $1.68 billion.
While we acknowledge the potential of First Solar (NASDAQ:FSLR) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FSLR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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