Four Solar Stocks to Buy Now

With a growing global awareness regarding climate change, renewable energy is getting more and more attention. Around the world, large solar and wind energy projects are being built and the share of electricity generated using clean methods is increasing. In the US, renewable energy went up by 67% between 2000 and 2016 and currently represents 15% of the US electricity generation, with the bulk coming from hydro power and wind power. At the same time, the share of solar power in the US, which is one of the top countries that produce the most solar power in the world, is expected to climb to 36% by 2050, which makes it the fastest-growing electricity source. Around the world, the installed PV capacity reached 303 Gigawatts last year and represented 1.8% of the global demand. While this might not seem like a lot, in 2000, the total global PV capacity stood at just 170 Megawatts.

So, on the surface, it looks like solar industry is thriving and companies that are operating in it are also doing well. However, a closer look shows that solar companies have lost a lot of their appeal in the last couple of years. Over 100 solar companies around the world went bankrupt since 2010, including such one-time giants like Sun Edison and Suntech. Among the reasons for the fall of solar companies is the supply glut that flooded the market with solar panels, driving their prices lower. Since manufacturing facilities require substantial investments, many companies could not deal with low returns.

However, there is an upside. Because of the bankruptcies, the solar industry went through a consolidation phase, with a few survivors being able to grow the economics of scale. In addition, a handful of US solar companies stand to benefit from the recent tariffs on imported solar equipment. While the tariffs will leave worse off a lot of companies, such as rooftop installers and renewable energy developers and utilities, companies that manufacture panels in the US will see an increase in demand.

ermess/Shutterstock.com

In this way, there are several companies that represent good investment opportunities. Before going through all of them, we should narrow down the search by looking at what are the favorite solar companies among hedge funds.

At Insider Monkey, we track over 600 hedge funds and other institutional investors and every quarter we look through their 13F filings to see how many funds are invested in thousands of individual stocks. We use the data to identify the best small-cap stocks to invest in under our small-cap strategy (which has outperformed the market by over 20 percentage points since 2014), which we share in our quarterly newsletters. In addition, we have a monthly activist newsletter that analyzes one of over 140 activist funds and identifies the best ways to imitate that fund eight out of 12 months of the year.

When we look at the numbers from the last round of 13F filings, we can see that hedge funds are not overly fond of solar stocks. Back in 2015, Sun Edison dominated the industry and was one of the 25 most popular stocks among the hedge funds in our database, with 93 funds holding shares of the company. However, the subsequent bankruptcy of Sun Edison cooled down the hedge fund sentiment even further. Nevertheless, we have selected four solar stocks that not only currently rank as the most popular among the funds in our database, but which also have registered a more or less steady sentiment over the last couple of years.

In First Solar, Inc. (NASDAQ:FSLR), there were 27 funds holding shares at the end of 2017, unchanged over the quarter, but higher than 21 funds with long positions a year earlier. First Solar, Inc. (NASDAQ:FSLR) is one of the companies that stand to benefit the most from the tariffs, because it manufactures some of its panels in the US and its thin-film panels may be exempt from the import tariffs. The company has already announced plans to restart some production at its Ohio factory that it had shut down last year on the back of strong demand. The production was halted because First Solar, Inc. (NASDAQ:FSLR) was preparing to launch its next-gen Series 6 panels, but it is seeing such a strong demand for the existing Series 4 panels that it will restart two of the lines. In addition, First Solar, Inc. (NASDAQ:FSLR) said last month it will build a 200-Megawatt solar power plant in Georgia, which will be the largest standalone PV facility in the southeast US. The construction is expected to begin in November and completed in late 2019.

The number of investors from our database that hold shares of Solaredge Technologies Inc (NASDAQ:SEDG) inched down by one during the last three months of 2017, but appreciated by 10 to 27 over the year. Solaredge Technologies Inc (NASDAQ:SEDG)’s stock has surged by over 260% in the last 12 months amid optimism regarding the company’s prospects and better-than-expected earnings reported for the last three quarters. For the fourth quarter, the company posted EPS of $0.85, which easily beat the consensus estimate of $0.65, while its revenue soared by almost 70% on the year to $189.30 million and topped the expectations by $8.60 million. Solaredge Technologies Inc (NASDAQ:SEDG) also said it is seeing a healthy growth rate in sales and the management is focused on the earnings as it expanded margins and continues to cut costs. For the current quarter, Solaredge Technologies Inc (NASDAQ:SEDG) expects revenue between $200 million and $210 million, significantly above the consensus estimate of $157 million.

TerraForm Power Inc (NASDAQ:TERP) saw 16 funds tracked by Insider Monkey long its stock heading into 2018, unchanged over the year, but higher than 12 funds at the end of September. As a former yieldco of the now bankrupt Sun Edison, TerraForm Power Inc (NASDAQ:TERP) went through a transitional period as it became majority owned by Brookfield Asset Management Inc (NYSE:BAM) flagship renewable power company, Brookfield Renewable Partners LP (NYSE:BEP). In addition to buying a 51% stake in TerraForm Power Inc (NASDAQ:TERP), Brookfield Renewable also acquired 100% of Sun Edison’s other yieldco TerraForm Global last year. Under Brookfield, TerraForm Power Inc (NASDAQ:TERP) has reinstated its dividend and as it expects to grow its dividend in the long run, it has to acquire more renewable projects, having obtained a $500 million subordinated acquisition facility. Last month, TerraForm Power Inc (NASDAQ:TERP) said it had launched a $1.2 billion bid for Spanish renewable energy company Saeta Yield. The deal will be financed by a $400 million equity offering backed by Brookfield and with available liquidity. The company also raised its annual dividend target to $0.76 per share from $0.72, citing the accretion of the transaction.

Last but not least, in Canadian Solar Inc. (NASDAQ:CSIQ), there were 13 funds with long positions at the end of the year, down by one fund over the quarter, but slightly higher than 12 funds at the end of 2016. Earlier this month, Canadian Solar Inc. (NASDAQ:CSIQ)’s stock jumped by over 6%, which offset most of the decline since the beginning of the year. The stock appreciated on the back of a strong fourth-quarter report, which included EPS of $1.01 and revenue of $1.11 billion, versus expectations of $0.96 and $1.13 billion, respectively. Even though, the company’s revenue was slightly lower than the consensus estimate, it grew by 66% on the year as solar module shipments stood at 1.83 Gigawatts, higher than the company’s guidance of 1.72 GW to 1.82 GW, while gross margin of 19.7% went up from 17.5% in the third quarter and was above the guidance of 16.5%-18.5%. For the full year, Canadian Solar Inc. (NASDAQ:CSIQ) forecasts revenue between $4.40 billion and $4.60 billion and module shipments in the range of 6.6 GW to 7.1 GW.

Disclosure: none