3 Alternative Energy Stocks to Buy Amid Hydrogen Investment Lag
Per the U.S. Energy Information Energy (EIA), wind share of the U.S. generation mix is projected to rise from 11% in 2022 to 12% this year. This should bolster alternative energy stocks’ prospects. However, the United States still lags its Asia and Europe counterparts when it comes to government funding for the adoption of hydrogen in electricity generation. Nevertheless, the electric vehicle market boom, with this market’s size expected to grow at a CAGR of 25.4% during 2021-2028, has been a key growth catalyst for the alternative energy industry. The forerunners in the U.S. alternative energy industry are TC Energy TRP, Excelerate Energy EE and Enlight Renewable Energy ENLT.
About the Industry
The Zacks Alternative Energy industry can be fundamentally segregated into two sets of companies. While one group is involved in the generation and distribution of alternative energy and electricity from sources like wind, natural gas, biofuel, hydro and geothermal, the other set is engaged in the development, design and installation of renewable projects involving these alternative energy sources. The industry also includes a handful of stocks that offer fuel cell energy solutions, which have gained popularity as an affordable clean energy of late. Per a report by the American Clean Power Association, as of Mar 31, 2023, more than $150 billion in capital investment was announced for utility-scale clean energy projects and manufacturing facilities since federal incentives were signed into law last August.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy has been making noticeable progress in the United States. Per the latest report released by the American Clean Power Association, wind announcements increased 61% in the first quarter of 2023 compared with that reported in the first quarter of 2022. Looking ahead, 10 U.S. states have set offshore wind targets totaling more than 81,000 MW. In EIA’s Short-Term Energy Outlook published in March 2023, it was projected that the wind share of the U.S. generation mix will increase from 11% in 2022 to 12% this year. This reflects a solid opportunity for the U.S. wind market at present, which, in turn, should boost the overall expansion of the alternative energy industry.
Persistent Lag in H2 Investment: Government and industry investment in hydrogen as an energy carrier adds up to $2 billion per year in Asia and the European Union, as stated by a report sponsored by the major oil companies, automakers, hydrogen producers and fuel cell manufacturers, and released by Greentech Media in October 2020. However, the Biden-Harris Administration, through the U.S. Department of Energy, announced in December 2022 its intent to issue $750 million in funding from President Biden’s Bipartisan Infrastructure Law to dramatically reduce the cost of clean-hydrogen technologies. This, although higher than the prior plan to spend $28 million in federal funding for research and development, and front-end engineering design projects, remains much lower than the amount invested by its Asia and Europe counterparts.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more individuals are choosing to switch from gasoline-powered vehicles to EVs each year, thereby boosting the market for EVs. In the United States, favorable government policies and support in terms of subsidies and grants, tax rebates, and other non-financial benefits in the form of carpool lane access, along with declining battery prices, have been boosting the EV market. The U.S. EV market size is expected to reach $137.43 billon in 2028 at a CAGR of 25.4% from $28.24 billion in 2021, as estimated by Fortune Business Insights firm’s analysis. Such an impressive outlook bolsters the prospects of clean energy stocks, which offer the largest electric vehicle charging network in the United States.
Zacks Industry Rank Reflects Grim Outlook
The Zacks Alternative Energy industry is housed within the broader Zacks Oils-Energy sector. It carries a Zacks Industry Rank #168, which places it in the bottom 33% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s earnings estimates for the current fiscal year have moved down 18.1% to $1.22 per share since Apr 30.
Before we present a few alternative energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Alternative Energy Industry has underperformed the Zacks S&P 500 composite and its sector over the past year. The stocks in this industry have collectively lost 12.7%, while the Oils-Energy Sector has grown 6.8%. The Zacks S&P 500 composite has gained 12.4% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 7.29 compared with the S&P 500’s 14 and the sector’s 3.01.
Over the last five years, the industry has traded as high as 9.35X, as low as 6.91X, and at the median of 7.44X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Alternative Energy Stocks to Buy
Excelerate Energy: Based in The Woodlands, TX, the company is a provider of floating liquefied natural gas terminals owned by energy tycoon George Kaiser. In May 2023, Excelerate Energy announced its first-quarter 2023 results. The company reported revenues of $211.1 million, down 64.7% year over year. Earnings improved a penny to 26 cents per share.
The company delivered an average earnings surprise of 123.74% in the last four quarters. EE currently sports a Zacks Rank #1 (Strong Buy).
Price & Consensus: EE
TC Energy: Based in Calgary, Canada, TC Energy is a premier energy infrastructure provider, primarily focused on natural gas transmission through its 57,500-mile network of pipelines spread across Canada, the United States and Mexico. In July 2023, the company posted second-quarter 2023 results. Its earnings per share came in at 24 cents, down from 90 cents in the second quarter of 2022.
TRP delivered an average earnings surprise of 1.05% in the last four quarters. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: TRP
Enlight Renewable Energy: Based in Tel Aviv, Israel, the company provides renewable energy platform that develops, finances, constructs, owns and operates utility-sale renewable energy projects. In July 2023, Clenera, an Enlight Company, signed a power purchase agreement with Salt River Project for an additional 394 megawatts of clean energy at CO Bar Solar outside Flagstaff, AZ. Once operational in 2025, Clenera expects CO Bar Solar to offset more than 4 billion pounds of carbon dioxide emissions every year.
The Zacks Consensus Estimate for 2023 sales indicates an improvement of 56.1% from the 2022 reported figure. The company currently carries a Zacks Rank #2.
Price & Consensus: ENLT
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TC Energy Corporation (TRP) : Free Stock Analysis Report
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