Renewable energy could be one of the next great growth industries in the United States.
According to the International Energy Agency, by 2020, renewables are projected to comprise 26% percent of global electricity supply – up from 22% three years ago. Furthermore, the U.S. Energy Information Administration states that total renewables used in U.S. electricity generation will increase 13% this year and 3% in 2017.
For investors interested in profiting from this undeniable trend, the following three renewable energy stocks could be very profitable ways to invest in the coming alternative energy boom.
First Solar (NASDAQ: FLSR)
First Solar is in high growth mode, but investors don’t seem to care. The company’s revenue jumped 80% last quarter, and management expects as high as 14% revenue growth this year.
First Solar is solidly profitable. The company generated $262 million in gross profit last quarter, compared to just a $38 million gross profit in the year-ago period.
It also has a great balance sheet, which it can use to buy back stock or invest in future growth initiatives. The company ended last quarter with $1.9 billion in cash on the books.
And yet, investors aren’t impressed. The stock has been beaten down this year, and as a result, trades for just 6 times earnings.
Investors are concerned about the threat of cheap imports from competitors in international regions like China, which could explain why the stock holds such a low multiple. But sooner or later, if the company keeps growing, these fears will fade – which means First Solar could be a fantastic buying opportunity right here.
Brookfield Renewable Partners (NYSE: BEP)
Brookfield Renewable Partners owns and operates renewable power generation facilities across North America, Europe and Latin America. The company has more than 100 years of experience investing in the energy industry, and it has a $25 billion portfolio of renewable power assets, particularly in wind energy.
Brookfield has been invested in wind energy projects for a decade. It currently owns 37 wind facilities across six countries. Last year, the company generated $1.1 billion in adjusted EBITDA and $1.6 billion of revenue. The company generated $2.23 per unit in adjusted funds from operations, which indicates how much cash flow a partnership generates. This handily covered its $1.66 per unit distribution.
What really should excite investors about Brookfield is its massive yield. Since it is structured as a partnership, Brookfield is required to distribute the majority of its cash flow to investors. This results in a hefty 6% yield at its current unit price. And the company has guided investors to expect 5%-7% growth in its distribution per year.
For income investors, this could be a very rewarding play on renewable energy.
Edison International (NYSE: EIX)
Edison International is a utility, and while it does generate electricity from natural gas, it also has a large renewable subsidiary, Southern California Edison, which is the largest purchaser of renewable energy in the United States.
California-based Edison International has 14 million customers. Geographically, it is perfectly positioned to capitalize on the boom in solar power, and it is also heavily involved in hydroelectricity as well. This lays a long runway of growth ahead for the company.
Plus, as a regulated utility, Edison International is allowed to pass along regular rate increases to customers, which gives it steady growth each year. The company’s rate base rose $300 million in 2015, and management expects another $300 million increase this year and a $100 million increase for 2017.
Edison International is solidly profitable. It earned $4.10 per share last year, and management expects the company to earn $3.81-$4.01 per share this year. It’s also a great play for dividends; Edison has increased its payout for 12 years in a row, including a 15% raise this year, and the stock yields 2.6%.
Renewed Faith in Renewables
It’s not hard to see why the renewable energy industry has such great promise. The prospect of infinite, clean energy is very appealing for the nation. And in recent years, thanks to a steady reduction in costs, the economics of renewable energy firms have improved to the point that it makes for good business as well.
First Solar, Brookfield Energy Partners and Edison International are three excellent plays on renewable energy.
DISCLOSURE: Bob Ciura personally owns shares of First Solar (NASDAQ: FSLR).