Green energy stocks provide some of the best buying opportunities this year, with many trading at compelling levels. As Wall Street shunned growth names in late 2021, many green energy stocks had severe selloffs. Today, many of these top green energy stocks continue to change hands at bargain levels.
Generally, these companies are still in their early startup stages of development, with very high sales growth but low profitability and high debt loads. Thus, the risk here is elevated, and I understand why some investors choose not to invest in this sector.
However, the future growth potential with these green energy stocks is tremendous. Electricity demand will likely continue to increase with the expansion of electric vehicles and the on-shoring trend. The government must invest substantially more in green energy generation to meet future demand and zero emissions targets by 2050.
In short, I predict there will be much more in the way of subsidies for green energy, and government cash is the top factor for why investors should invest in these stocks.
Here are three green energy stocks that provide great entry points right now.
| ENPH | Enphase Energy | $185.63 |
| RUN | Sunrun | $18.75 |
| PLUG | Plug Power | $8.56 |
Enphase Energy (ENPH)
Enphase Energy (NASDAQ:ENPH) specializes in solar energy generation, a segment with much more room to grow. The U.S. currently generates only 3.4% of its electricity output via solar, which gives investors an excellent opportunity to snap up the stocks of emerging solar businesses before that number increases considerably.
The U.S. Energy Information Administration projects that 44% of electricity generation will be renewable by 2050, and 51% of that green energy will come from solar. Another more optimistic study from the Department of Energy projects that solar will contribute to a whopping 45% of all electricity generation by 2050. I believe the latter is possible if current trends continue and EV charging infrastructure (powered by solar) expands. Enphase Energy specializes in this category too.
ENPH stock has been building up momentum through the month of May, appreciating nearly 19% from its trough last month. The company’s financials are in the green for both the top- and bottom-lines, though some nervousness exists regarding Enphase’s guidance. However, compared to other unprofitable solar businesses, Enphase is a top bet.
Gurufocus’ stock model places a fair value of more than $600 per share by 2026 for the stock. The average Wall Street analyst also sees a 43% appreciation over the next year.
Sunrun (RUN)
Sunrun (NASDAQ:RUN) enjoys similar upside catalysts to ENPH, as it is also a business that specializes in solar energy. The caveat here is that Sunrun is still unprofitable, and the growth with this company is lower than what Enphase Energy offers. That caveat is priced in, as RUN stock changes hands almost 15% below its pre-pandemic high.
That said, Sunrun is one of the top energy stocks in my book due to its valuation. Most of its headwinds have already been priced in, and the company’s tailwinds are severely under-appreciated. Sunrun leads the U.S. residential solar market, a relatively under-penetrated industry with a forecasted 15.3% compounded annual growth rate until 2030.
However, problems related to profitability could lead to a cash crunch in the near-term. Sunrun has $9.34 billion in debt and $628.5 million in cash, but that still leaves more than a year of cash runway if the company keeps its net change in cash consistent. Furthermore, analysts believe the company will trim its losses substantially in the next two years, from negative earnings per share of -$1.61 this year to -$0.64 in 2025.
Accordingly, I believe RUN stock will deliver substantial growth once the storm passes. Gurufocus puts a $60 fair price for the stock by 2026, while Wall Street analysts project this stock could be worth $33 per share over the next year, implying 76.8% upside potential.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG) is the only non-solar green energy stock on this list. The company specializes in hydrogen fuel cells for electric vehicles, a niche sector many strongly believe in.
In simple terms, hydrogen fuel cells use hydrogen and oxygen to create electricity, releasing only water vapor. This is seen as a much better alternative than what EVs currently use for batteries, requiring tremendous amounts of expensive lithium that we may be unable to produce.
Of course, there are downsides and upsides here. Hydrogen fuel cells are more expensive right now, and aren’t as reliable. But they are more efficient and produce significantly less pollution. It is difficult to tell where this energy source will be in the next few decades, but banking on PLUG stock at its current price range is not a bad idea at all.
The stock sits almost 87% below its 2021 high but is still expanding its sales rapidly. It has the highest upside potential among major green energy stocks, with the average price target implying a massive 140.4% upside with PLUG stock over the next year.
On the date of publication, Omor Ibne Ehsan did not have (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.
