Wayne Gretzky once said, “I skate to where the puck is going, not where it has been.” For our purposes, it simply tells us to invest based on what will happen in the future, rather than relying on current events to determine where to put your money. Look at clean energy stocks, for example. Even though many are reeling at the moment, I’d still buy them based on future trends.
Morningstar, for example, predicts that U.S. electricity growth will climb by an average of 1.4% between this year and 2032. Moreover, the governments in the U.S., China, and Europe are all incentivizing and mandating the growth of clean energy. In America, clean energy will account for 45% “of the total U.S. generation mix by 2032, up from 16% in 2022,” Morningstar added.
That being said, I’d put money into the following seven ideas.
Clean Energy Stocks: Darling Ingredients (DAR)
Darling’s (NYSE:DAR) joint venture with Valero (NYSE:VLO), Diamond Green Diesel, manufactures and markets renewable diesel which is made from “recycled animal fats, used cooking oil and inedible corn oil.” According to Diamond Green, its diesel “meets the most stringent low-carbon fuel standards.” The joint venture now produces 1.2 billion gallons of renewable diesel annually.
In the second quarter, Diamond Green’s revenue soared 34% versus Q1 and 54% compared with the same period a year earlier. Moreover, according to Seeking Alpha columnist Invest Heroes, Darling’s profits from Diamond Green will soar 46%-77% this year to $545 million to $661 million, before climbing to $761 million in 2024.
And Diamond Green is preparing to produce sustainable aviation fuel (SAF) starting in 2025 when it is looking to convert 50% of its output to SAF. According to Energy Intelligence, “the “airline industry… is snapping up every available gallon (of SAF) to achieve net-zero goals.” Valero predicts that the demand for SAF will increase tremendously through 2030.
Given these points, SAF prices should be high, causing DAR to generate elevated profits from Diamond Green.
First Solar (FSLR)
JPMorgan on Oct. 19 upgraded First Solar (NASDAQ:FSLR) to “overweight” from “neutral,” citing what it sees as the positive risk-reward for FSLR stock after its recent, sharp drop, The bank noted that FSLR’s solar panels are sold out “into later this decade.” As a result, it expects First Solar to be less affected than many of its peers by high-interest rates. JPMorgan, however, cut its price target on the shares to $220 from $239.
British bank Barclays on Oct. 12 also upgraded FSLR stock to “overweight,” contending that FSLR will be the only firm able to qualify for tax breaks provided to the domestic manufacturers of solar panels by the Inflation Reduction Act.
Analysts, on average, expect the company’s earnings per share to surge to $13.17 in 2024, up from $8.03 in 2022, while the company’s forward price-earnings ratio is a very low 11.8.
Clean Energy Stocks: Brookfield Renewable Partners (BEP)
Brookfield Renewable (NYSE:BEP) has a sizable portfolio of widely varied renewable energy projects globally. It expects to increase the amount of electricity production that it owns by nearly five gigawatts in 2023 alone and by 18 gigawatts in the next five years. As a result, the company should benefit from rising electricity demand and increasing government subsidies for renewable energy in many parts of the world.
Also noteworthy is that BEP is profitable, as the company’s funds from operations climbed 10% in the second quarter versus the same period a year earlier to $312 million. As a result, BEP likely will not have to worry about borrowing a great deal of money at elevated interest rates.
The firm has a low trailing price-sales ratio of 1.19 times, while its Enterprise Value/EBITDA ratio is also quite small, coming in at 8.6. What’s more, it has a high dividend yield of 6.4%.
Dominion Energy (D)
A Virginia-based electric utility, Dominion Energy (NYSE:D) is becoming a leader in developing renewable energy projects.
The company recently began the second phase of its $9.8 billion offshore wind project located off the coast of Virginia. Dominion expects the project to obtain $3 billion of tax credits once it’s completed, and the initiative is expected to enable the firm to increase the electric bills of its Virginian customers by about $4 per month.
Also recently, Dominion proposed over 12 new solar projects in Virginia, which would provide electricity to about 200,000 households in Virginia if they are completed. Those initiatives would also likely qualify the company to obtain tax credits under the Inflation Reduction Act.
Moreover, the company should benefit over the longer term from increased demand for electricity and lower interest rates as inflation continues to trend downwards. D stock has a high dividend yield of 6.6%.
Bloom Energy (BE)
According to the Wall Street Journal, Bloom Energy (NYSE:BE) can benefit by selling its electricity-generating fuel cell servers to data centers that are starved for electricity. Its servers can run on either natural gas or green hydrogen.
Bloom also sells electrolyzers, which are used to make green hydrogen. Bloom’s electrolyzer business should boom as the demand for green hydrogen surges, driven by government incentives and companies’ efforts to reduce their carbon footprints.
Over the longer term, Bloom should benefit from its participation in one of the seven hydrogen hubs that will receive $7 billion from the Obama administration.
Air Products (APD)
As “the world’s leading hydrogen supplier,” Air Products (NYSE:APD) is well-positioned to benefit from the greatly increased utilization of green hydrogen.
Indeed, the company is spending $7 billion to produce green hydrogen in Saudi Arabia that it says will “power buses and trucks around the world by 2025, eliminating 3 million tons per year of Co2 emissions.”
Indicating that the project will be profitable, ACWA Power, “owned by eight Saudi conglomerates,” is also investing in the project. APD is very profitable, as it generated earnings per share of $11.47 in 2022, so it should not be greatly affected by high-interest rates.
Clearway Energy (CWEN)
Clearway Energy (NYSE:CWEN) is a smaller version of Brookfield Renewable Partners, as Clearway owns “5,500 net megawatts (MW) of installed wind and solar generation projects.”
Clearway should benefit from higher demand for electricity and from tax credits from the Inflation Reduction Act. Also like Brookfield, Clearway is profitable, as it generated an operating income of $201 million last year. Consequently, it should not have to borrow very much money, limiting the impact that it will feel from high-interest rates. The stock has a low enterprise value/EBITDA ratio of nine times and pays a high dividend yield of 7.1%.
On the date of publication, Larry Ramer held a long position in DAR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
