Alternative energy stocks will likely be boosted by two medium-term catalysts and one long-term catalyst. One of the medium-term catalysts involves the Internal Revenue Service (IRS) finally releasing its rules on a hydrogen production tax credit. Slated to occur by March, the announcement will make the outlook of for U.S. hydrogen producers more certain and will lift hydrogen stocks if the rules governing the eligibility for the tax credit are not overly onerous. Another positive, medium-term catalyst will be declining interest rates since renewable-energy producers typically have to borrow a great deal of money to finance their projects. Finally, by 2025, electricity shortages could start hitting the U.S., increasing the demand for alternative energy. For example, New York City is expected to have major electricity shortages by then.
The Midcontinent Independent System Operator, responsible for generating electricity for “45 million people across the central United States” is estimating it could have a 1.5 gigawatt shortfall starting in the summer of 2025. Here are three alternative energy stocks well-positioned to benefit from two of these three positive catalysts.
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Linde (NASDAQ:LIN) provides investors with an intriguing combination of a thriving, highly profitable industrial gas business and two large, clean hydrogen plants that should meaningfully boost the company’s top and bottom lines in the long term. And LIN stock should get a meaningful lift when the IRS releases its hydrogen production tax credit rules within the next several months. The company’s multiple, positive attributes make it one of the better, safer alternative energy stocks to buy.
On the clean hydrogen front, the company has started to prepare to build one plant in Beaumont, Texas and recently announced it was building another one in Phoenix in partnership with NextEra Energy (NYSE:NEE), a clean energy giant.
Meanwhile, Linde recently raised its fiscal 2023 earnings per share guidance to between $14.00 and $14.10 from $13.80 to $14. As a result, the company looks poised to increase its EPS by 14% to 15% this year.
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Enphase (NASDAQ:ENPH) develops inverters to convert the sun’s rays into electricity. Due to problems in two of its markets — California and Europe — the company provided lower-than-expected Q4 EPS guidance earlier this month.
Specifically, it now expects to generate about $325 million in sales, versus analysts’ average estimate at the time of $582 million.
California greatly reduced the amount that utilities have to pay the owners of solar panels, lowering the demand for these panels by people who own homes. But “in a few quarters,” the ENPH CEO anticipates the sales of its microinverters will “normalize…to…levels” the company reached before the regulatory change. Among the factors likely to help accelerate the latter process are higher electricity rates, lower interest rates and inventory depletion.
Similarly, in Europe, the company was hurt by excessive inventory rates, but that problem should ease as inventory levels decline in the medium term. Enphase expects favorable regulatory changes in Europe, higher electricity rates in France and positive momentum in Germany to boost company sales in the medium term.
In the last year, the forward price/earnings ratio of ENPH stock has dropped a great deal and is now quite attractive. Specifically, the shares now have a forward P/E ratio of 26.45, down from 57.8 in September 2022.
Array Technologies (ARRY)
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Array (NASDAQ:ARRY) develops and markets solar trackers used to optimally position solar panels to capture as much sunlight as possible.
The company’s stock tumbled because it cut 2023 revenue guidance by a relatively small amount, reducing it to between $1.525 billion and $1.575 billion from $1.65 billion to $1.73 billion. But CEO Kevin Hostetler explained the reduction was due primarily to “short-term” delays associated with solar developers looking to renegotiate their deals in light of higher interest rates. Consequently, I expect the company’s sales growth to reaccelerate in Q1 or Q2 of 2024.
Moreover, ARRY is still generating significant profits, as it reported net income, excluding certain items, of $10.1 million last quarter.
ARRY stock has a very low, attractive forward price-earnings ratio of just 10.5, while its trailing price-sales ratio is also low, coming in at 1.4.
On the date of publication, Larry Ramer 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.
Larry Ramer has conducted research and written articles on U.S. stocks for 15 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been PLUG, XOM and solar stocks. You can reach him on Stocktwits at @larryramer.
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