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Top 3 Energy Stocks to Buy as Renewables Gear Up for Growth

Manaswita Ghosh Dutta
·5 min read

The renewable energy sector may have slowed down its expansion during the pandemic-hit months this year, but renewed activities in the United States and abroad have raised it hopes. Construction activity in the sector is picking up again, setting the ball rolling for further expansion. This is why it is prudent to invest in stocks from the sector at present, to bank on this renewed activity.

Sector Ramping Up As Economy Reopens

Despite the economic slowdown over the past few months, the U.S. Energy Information Administration (EIA) forecast that renewables will be responsible for the largest portion of new electricity generating capacity in 2020. According to the EIA, about 20 gigawatts (GW) of new wind power capacity and 13 GW of utility-scale solar capacity will be generated by the power generation sector in 2020.

In short, renewable will be the fastest growing source of power generation this year. In addition, several factors are playing out well in favor of the sector.

First, the U.S. Treasury Department and the Internal Revenue Service in May-end issued a notice to provide tax relief to affected taxpayers, who are engaged in solar and wind projects, per a reportby Kallanish Energy. The notice extends the safe harbor time provisions for renewable energy projects that began construction in 2016 or 2017. This provision by the Trump administration allows these projects till the end of 2021 to start power generation.

Second, low cost of renewables has made them ideal for investment in this time of recovery for many countries. The European Union already has plans for generating more sustainable energy over the long term and may even opt for stimulus plans to push forward the proposals.

After all, declining costs over the long term and technological advancements will be major drivers of the sector ahead. These are urging more countries to expand their reach in generating power via renewables.

Renewable Energy Additions in U.S. Are Impressive

Coming to the United States, the country’s wind and solar power generation in 2019 has been largely encouraging. Last year, the country added 9.1GW in wind energy capacity to reach an overall 105.6GW, while also adding 13.3GW of solar energy, to bring the total solar capacity to 77.7GW.

Per an FERC report, which held data through Feb 29, 2020, wind and solar energy are on track to generate more power than natural gas over the next three years.

In fact, considering a review of FERC data by the non-profit research and educational organization Sun Day Campaign, during January and February this year, solar, wind and hydropower provided 85.7% of new American electrical generating capacity.

Second, tracking the report further, one finds that nearly 51 GW of new generating capacity will be added to that of the U.S. total by February 2023 by renewable alone (wind, solar, geothermal, hydropower and biomass etc). In stark contrast, power generated by a combination of natural gas, coal, oil and nuclear power is expected to decline by 2GW.

Finally, the United States has taken the top position in the world’s renewable energy market, per data by Ernst & Young. The country overtook China to lead EY's Renewable Energy Country Attractiveness Index for the first time since 2016. The index ranks countries by their attractiveness in terms of renewable energy investment.

3 Stocks to Buy

This is why we have handpicked three stocks that have extensive operations in the renewable energy space. All of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NextEra Energy, Inc. NEE is the largest producer of wind and solar energy globally.

NextEra Energy’s expected earnings growth rate for current year is 8.2%. Shares of the company, which belongs to the Zacks Utility - Electric Power industry, have gained 7.3% over the past three months compared to the industry’s gain of 3.4% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 0.1% north in the past 60 days.

Vistra Energy Corp. VST is an integrated power company. The company came up with its latest retail electricity product TXU Energy Pure Solar last year, which offers solar power.

Vistra Energy’s expected earnings growth rate for the current year is 23.2%. Shares of the company, which belongs to the Zacks Utility - Electric Powerindustry, have gained 19% over the past three months compared to the industry’s gain of 3.3% during the same period. The Zacks Consensus Estimate for the company’s current-year earnings has moved 8.5% north in the past 60 days.

Canadian Solar Inc. CSIQ is a designer and manufacturer of solar module products. The Canada-based solar power company’s products convert solar energy into electricity. Canadian Solar recently signed an agreement with Amazon.com, Inc. AMZN, under which the former’s subsidiary Canadian Solar Australia will provide power from renewable resources to the latter.

Canadian Solar’s expected earnings growth rate for current year is 22.8%. Shares of the company, which belongs to the Zacks Solar industry, have gained 6.7% over the past three months. The Zacks Consensus Estimate for the company’s current-year earnings has moved 30% north in the past 60 days.

Breakout Biotech Stocks with Triple-Digit Profit Potential

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