We recently compiled a list of the 8 Best Wind Power and Solar Stocks to Buy. In this article, we are going to take a look at where NextEra Energy Inc. (NYSE:NEE) stands against the other wind power and solar stocks.
It is arguably one of the best times to pursue investment opportunities around wind power and solar stocks as the United States moves to achieve 100% clean energy use by 2035 and reduce emissions by 50 to 52% by 2030. As the US advocates for various initiatives to help tackle the climate crisis and keep a 1.5 C limit on warming, the case for the best wind power and solar stocks to buy is becoming clear.
The US wind power and solar capacity were more significant than ever last year as part of the country’s long growth trend for renewable energy. A total of 425,235 gigawatts hours of electricity were generated from Wind power, accounting for more than 12% of the country’s grid. Wind power has been the country’s largest renewable energy source since 2019.
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On the other hand, solar energy accounted for less than 4% of all the US power generation, affirming plenty of room for growth in the coming years. Likewise, solar power generation is projected to grow by 75%, from 163 billion kWh in 2023 to 286 billion kWh by 2025. Wind power is projected to increase by 11%.
Nevertheless, clean energy stocks had one of the worst runs in 2023 as they posted an average annual return of -10.5%, slightly improving from an average return of -11% a year ago. The underperformance of 2022 was attributed to the high inflation levels that saw investors’ sentiments take a significant hit.
Likewise, the underperformance of wind and solar energy stocks persisted in 2023 owing to the rising interest rates as the US Federal Reserve tried to tame runaway inflation. Given that most solar and wind companies must rely on the debt markets to raise capital, most have faced significant challenges amid the high interest rate environment.
The situation was further exacerbated by supply chain problems amid difficulties obtaining renewable energy equipment like wind turbines and solar panels over the past two years. Matthew Donen, equity analyst at Morningstar, said:
“We see several challenges for participants in the wind energy sector. Wind turbine manufacturers have struggled to restore profitability from unprecedented cost inflation in 2021, and developers of wind projects have recorded billions in impairments due to higher equipment costs and an increase in interest rates.”
Fast forward, clean energy stocks are on the move as investors take note of their depressed valuations. The growing demand for wind and solar energy for use in electric vehicles, building heating, and use in industrial settings like data centers are some of the catalysts driving growth in the sector.
In the aftermath of the European Central Bank and the Bank of Canada cutting interest rates, the best wind power and solar stocks again started seeing increase in investor positioning.
However, there are growing concerns that clean energy companies could come under pressure amid uncertainty around the US presidential election. The prospect of Republicans taking over the Whitehouse and Congress, raises the prospects of tax credits under the Inflation Reduction Act (IRA) being affected.
Nevertheless equity analyst Donen believes it would be difficult for a Trump administration to get rid of all favorable tax policies that have bolstered sentiments around wind and solar stocks. Here’s what Donen said:
“We think it would be difficult for Trump to roll back favorable tax policy for renewable energy enjoyed from the 2022 Inflation Reduction Act. A Trump administration might be able to slow implementation of the Act, but that is unlikely to slow renewable energy growth in the short-run.”
With the world focused more than ever on combating the effects of global warming, including a shift from fossil fuels to clean energy, tremendous opportunities are cropping up. With the COP26 targeting net zero emissions by 2050, an investment of $4 trillion would be needed by 2030. This is one of the reasons investors should start paying attention to the best wind power and solar stocks to buy now, and let’s take a look at them now.
Our Methodology
To compile the list of the best wind power and solar stocks to buy, we scoured different solar and wind energy ETFs and picked 8 of the top companies with tremendous upside potential. Once we had consolidated the list, we ranked the stocks based on the number of hedge funds that owned it.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. 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).
A wind turbine, its blades spinning to generate clean renewable energy.
NextEra Energy Inc. (NYSE:NEE)
Number of Hedge Fund Investors: 73
Stock Upside Potential: 1.02%
NextEra Energy Inc. (NYSE:NEE) is one of the best wind power and solar stocks to buy for exposure to generating, transmitting, and distributing electric power to retail and wholesale customers. The company generates power through wind, solar, and nuclear, among other clean energy options.
NextEra Energy Inc. (NYSE:NEE) is one of the largest wind power producers in the world, with 21 gigawatts of operating wind generation capacity. It has also announced plans to build as much as 11.5GW of new wind energy capacity by 2027, seeking to take advantage of the strong demand for clean energy for powering households and data centers amid the artificial intelligence revolution.
NextEra Energy Inc. (NYSE:NEE) is already moving quickly to address the expected 38% rise in power demand in the US. With the expected demand increment to be met through renewable energy and battery storage, the company is investing in the future. Consequently, it plans to sell $2 billion of equity units as it looks to raise much-needed capital to fund investments in energy and power projects.
In addition to a robust expansion plan, NextEra Energy Inc. (NYSE:NEE) has proven to be a key value generator, increasing its dividend payout by over 11% over the past five years. The company currently has a solid 2.61% dividend yield.
Analysts on Wall Street are bullish about NextEra Energy Inc. (NYSE:NEE), with an average price target of $79.88, implying 1.02% upside potential from current levels. On the other hand, 73 hedge funds out of 912 tracked by Insider Monkey held stakes in the company as of the second quarter. Rajiv Jain’s GQG Partners is the largest shareholder of the company, holding 12.49 million shares valued at $884.56 million.
ClearBridge Investments also mentioned this in its Q2 2024 investor letter. Here is what the firm has to say about NextEra Energy, Inc. (NYSE:NEE):
“AI-related momentum was a key driver of performance in the second quarter, lifting the enablers in technology as well as holdings like renewable power producer NextEra Energy, Inc. (NYSE:NEE) that supplies the increasing energy needs of data centers. Parts of the market lacking an AI connection, like our medical device holdings, underperformed despite no change to fundamentals. We have managed through several similar momentum periods over our tenure and have delivered long-term results for shareholders by staying true to an approach that emphasizes diversification across three buckets of growth companies (select, stable and cyclical) and seeks to take advantage of attractive entry points into quality growth businesses.”
Overall NEE ranks 2nd on our list of the best wind power and solar stocks to buy. While we acknowledge the potential of NEE as an investment, 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 NEE, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
