Don’t Miss the Boom: 3 Solar Stocks Set to Explode Higher
The solar sector has been one of the market’s hottest areas this year, with many stocks delivering triple-digit returns. However, over the past couple of months, we’ve seen a sharp pullback, with many of the same solar stocks down 30-50% from their highs.
While painful in the short-term, this correction provides a tremendous buying opportunity for investors who recognize that the secular growth trends powering the industry remain firmly intact. In fact, I believe most solar stocks are primed to rebound strongly and deliver outsized returns in the coming years.
Now, I know what some of you are thinking. With inflation ticking up a bit, interest rates on the pause, a yield curve steepening, and fears of a recession, is this really the time to buy beaten-down solar stocks?
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My answer is yes! While the overall market tends to get choppy during such periods, the long-term trajectory for this sector is up and to the right. Smart investors use pullbacks to accumulate shares of high-quality companies at discounted valuations. And when it comes to solar, the long-term growth prospects are immense, thanks to global initiatives to combat climate change and bolster energy security by ramping up solar deployment.
Of course, many still believe the worst is not yet behind the companies on this list. Only time will tell if that’s true. However, with the declines in many solar stocks, I find it hard to believe they can keep sliding lower. Let’s look into three noteworthy options in this sector worth buying now.
Enphase Energy (ENPH)
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Enphase Energy (NASDAQ:ENPH) has seen its stock plunge nearly 65% from its high. However, fundamentally, Enphase is firing on all cylinders. In Q2 2023, Enphase posted revenue growth of 34% year-over-year to $711 million, and net income rose to $157 million, more than doubling from the year prior.
I believe the pullback in ENPH stock is not due to any deterioration in the business. Instead, it is due to an inventory correction as the industry shifts from a period of product shortages to one of more stable supply. Enphase has navigated this transition well, with its Q2 gross margin still at a healthy 46%.
Looking ahead, Enphase has massive tailwinds. As a leader in microinverters for residential solar, Enphase is poised to ride surging demand as homeowners increasingly go solar. Plus, Enphase offers batteries and EV chargers, two hypergrowth markets. In fact, Enphase expects to launch its bidirectional EV charger in 2024. This charger will integrate solar, battery storage, and EV charging for maximum efficiency and cost savings.
With shares trading at just 24-times earnings in exchange for that growth, Enphase is ludicrously cheap, given its dominant position and stellar long-term prospects. The company also has a pristine balance sheet with $1.8 billion in cash against virtually no debt. As solar demand accelerates and Enphase penetrates new verticals like EV charging, I expect this stock to deliver huge returns over the coming years. Analysts have a consensus price target of $187, implying 56% upside.
JinkoSolar (JKS)
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As a vertically-integrated solar module manufacturer, China-based JinkoSolar (NYSE:JKS) has also been hammered, with shares down 64% from its peak last year. Yet, JinkoSolar just posted blowout Q2 2022 results, including 63% revenue growth (not currency adjusted) and a swing to net income of $180 million.
The story keeps getting better. JinkoSolar’s shipments of high-efficiency N-Type solar modules surged 74% sequentially to 10.4 GW. N-Type modules deliver higher efficiency and power output than standard P-Type modules, and JinkoSolar is cementing itself as an N-Type leader. In fact, JinkoSolar was the first company to ship over 10 GW of N-Type modules in a single quarter.
Despite this success, JinkoSolar trades at just 0.09-times sales and 2.86-times earnings, making it perhaps the cheapest solar stock around. The dirt-cheap valuation more than compensates for JinkoSolar’s high debt load, which is inherent in the capital-intensive solar industry.
As China deals with deflation, this debt will not have a major impact on its bottom line, in my opinion. The valuation is simply too low, and I see an upside of 100% or more for shares as JinkoSolar continues executing. Analysts expect 45% upside in one year.
SolarEdge (SEDG)
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As a leader in power optimizers, inverters, and monitoring services for solar systems, Israel-based SolarEdge Technologies (NASDAQ:SEDG) has carved out an attractive niche. But that hasn’t spared it from the sector-wide selloff, with SEDG stock losing more than half its value this year.
In Q2 2022, SolarEdge delivered record quarterly revenues just shy of a billion, up 36.2% year-over-year. Net income also made a strong recovery and jumped 692% to $120 million due to industry-wide supply chain challenges improving.
SolarEdge is now seeing an inventory correction across its distribution channels in both Europe and the U.S. This will act as a headwind to near-term growth. However, I see this as a temporary issue.
The long-term tailwinds for SolarEdge remain strong. As solar installation complexity increases, SolarEdge’s optimized inverter system will become more critical, allowing the company to gain market share. Furthermore, SolarEdge is expanding into adjacent products like grid services, EV charging, and solar trackers to drive incremental growth.
Currently, SEDG stock trades at just 2-times sales and 14.5-times earnings in exchange for the substantial growth ahead. Analysts have a $293 price target on the stock, implying a one-year upside potential of 117.3%.
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.
Omor Ibne Ehsan is a writer at InvestorPlace. He is a self-taught investor with a focus on growth and cyclical stocks that have strong fundamentals, value, and long-term potential. He also has an interest in high-risk, high-reward investments such as cryptocurrencies and penny stocks. You can follow him on LinkedIn.
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