Along with electric vehicles, investors see renewable energy stocks as an industry with the largest future potential. But after a tough couple of years in 2022 and 2023, renewable stocks have fallen out of favor. Renewable energy companies are among the hardest hit by global macroeconomic factors like high-interest rates.
But with rates appearing to have peaked and cuts in the future, now is a great time to add to these beaten-down stocks. The World Economic Forum says solar and wind will officially surpass coal as the world’s leading energy sources in 2024. While artificial intelligence (AI) and semiconductor stocks are making all of the headlines, savvy investors should rotate to sectors that are now playing catch-up. Coming into March, these are three undervalued renewable energy stocks that deserve to be on any investor’s radar.
Brookfield Renewable Partners (BEP)
Brookfield Renewable Partners (NYSE:BEP) is a spin-off from the highly successful Canadian asset management company, Brookfield (NYSE:BN). According to Yahoo Finance analysts, BEP stock has a one-year price target range from an average of $28.53 to a high of $32.00.
As of 2024, more than 50% of Brookfield’s renewable energy portfolio consisted of hydroelectric power. In all, it has 30 power markets located across 20 different countries. Brookfield anticipates there will be capital deployment of $7 billion to $8 billion by 2030. This includes investments across most types of renewable energy but primarily hydroelectric, solar, wind, and energy storage. BEP also pays a generous dividend with a current yield of 5.9%. The distribution has increased at a compounded annual growth rate (CAGR) of 6% since 2012.
Looking at its valuation, we see that BEP trades at a trading 12 month price-to-sales ratio of just 1.35x sales, while maintaining a five-year revenue CAGR of 12%. In short, what we have is the perfect recipe for a cheap stock with steady growth and a nice dividend as the cherry on top.
Enphase Energy Inc (ENPH)
Enphase Energy Inc (NASDAQ:ENPH) is a California-based company that provides solar energy infrastructure to both residential and commercial customers. Among 35 Yahoo Finance analysts that cover ENPH, they project a one-year price target range of $69 to $255 per share.
Solar stocks have largely been decimated over the past year due to high-interest rates. Yet, despite the pressure from the current macroeconomic environment, Enphase management still believes it can grow earnings at a CAGR of nearly 50% over the next few years.
With rapid growth anticipated for the future, it’s not unusual a stock like ENPH trades at a higher multiple. Although shares are currently trading at 8.2x sales, that multiple will surely come down if Enphase can maintain its current five-year revenue CAGR of 49%. As long as Enphase can sustain that revenue growth, ENPH becomes a reasonable stock pick for any investor looking to get exposure to the solar industry.
Algonquin Power & Energy (AQN)
Algonquin Power & Energy (NYSE:AQN) is a name familiar to energy and dividend investors. This company owns a massive portfolio of traditional energy and utility infrastructure as well as a wholly-owned renewable energy subsidiary. As per Yahoo Finance, analysts currently project AQN stock to have a one-year price target range of $4.75 to $10.00 per share.
The main interest in Algonquin usually revolves around it being a “cheap” stock with a high dividend yield. Just this past week, AQN also declared its first-quarter dividend of around 10 cents per share. If sustained for a whole year, it would add up to a hefty yield of around 7%. Looking at its valuation, we see that AQN trades at about 1.6x sales for the trailing 12 months. Despite a plateau in revenue over the past year, AQN offers a lucrative five-year revenue CAGR of 11%. With management’s plans to simplify its business model to optimize asset value, investors should definitely take a look into this cheap, high-yield renewable energy company.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
