As a leading developer of renewable energy, NextEra Energy (NASDAQ:NEE) is poised to get a tremendous boost from Joe Biden’s apparent victory in the 2020 presidential election. As a result, I believe that more conservative investors looking for exposure to the solar sector should buy NEE stock.
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In the 2020 campaign, Biden emphasized that he would promote renewable energy. Moreover, the lion’s share of his voters very much want the government to strongly incentivize the growth of solar and wind energy in the U.S.
NextEra’s Energy Resources unit has 19 gigawatts of solar and wind in operation and 13 gigawatts of those renewable -energy sources in its backlog, along with 2.5 gigawatts of battery-storage projects either in use or in backlog. As a result, NextEra and NEE stock should benefit from Biden’s pro-renewable energy agenda.
Tariffs and Tax Breaks
I believe that one of the reasons that solar stocks haven’t rallied tremendously since the election is that Democrats lost seats in the House and will probably not take control of the Senate. Moreover, centrist Democrats like West Virginia Sen. Joe Manchin and Rep. Tim Ryan of Ohio will more or less have a veto on all legislation.
Also, in all likelihood, Congress will not implement a carbon tax or pass the Green New Deal.
But Biden has a commitment to increase the proliferation of solar energy and his lack of interest in confronting China in the past. He is expected to eliminate tariffs imposed by President Donald Trump on solar panels from China. That, in turn, should dramatically lower the cost of the panels. This will meaningfully raising the bottom lines of solar-project owners, including NextEra.
Further, in 2021 Congress will more than likely pass much higher tax breaks for the owners of solar projects. These tax credits dropped sharply during Trump’s administration. Congress will probably restore the tax breaks because, historically, there was bipartisan support for them. Additionally, lawmakers tend to give presidents much of what they want, as long as what they’re seeking isn’t extremely controversial. Consequently, the tax bills of solar-project owners, including Next Era, should drop sharply starting in 2022.
Other Positive Catalysts
Since NextEra owns and operates one very large utility in Florida and an additional, medium one in the state, the company should benefit tremendously from the work-from-home trend. That’s because it will likely cause many to move from states with high taxes and very expensive living costs states with low taxes and low living costs, including Florida.
After all, if people can live wherever they want, regardless of where they work, many of them will choose to live in cheap states. As millions more Americans move to Florida, Next Era’s top and bottom lines should jump, boosting NEE stock in the process.
And as I mentioned in my previous column on Next Era, the shares should benefit from both “the proliferation of electric cars and data centers,” and the stock’s attractiveness to “environmental, social, and governance (ESG) investors.”
The Bottom Line on NEE Stock
NextEra should benefit from Biden’s presidency and multiple other trends. The company gets a great deal of its revenue from utilities, which are highly regulated. Thus, its shares are unlikely to soar five or 10 times in a year.
But conversely, the company is not going to lose a great deal of business to competitors or ever have trouble paying its bills. And, it can buy solar panels from any supplier. Consequently, conservative, risk-averse investors who want to benefit from the solar-energy boom should buy NEE stock.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.