Saying “cheap” anywhere near clean energy stocks seems almost impossible today. Some companies are trading at over 100 times sales, and valuations of everything from wind to solar to electric vehicles have skyrocketed with reckless abandon over the past six months.
As strong as the market has been for clean energy stocks, there are still some values out there for long-term investors. Three of our Foolish contributors think First Solar (NASDAQ:FSLR), XL Fleet (NYSE:XL), and Clearway Energy (NYSE:CWEN) are too cheap to pass up today.
A rock-solid solar energy stock
Travis Hoium (First Solar): Very few renewable energy companies have the history of profitable operations and rock-solid balance sheet that First Solar has. During the third quarter 2020 earnings release, management said it expects to close the year with $1.2 billion to $1.3 billion of net cash on the balance sheet and $3.65 to $4.15 per share in earnings. Given the current stock price, that’s a price-to-earnings multiple of 22, which is cheap for a renewable energy stock today.
First Solar has proven that it has solar panels that can command a premium in the market and has increased production quickly to meet demand. If the solar industry continues to grow, the company could have a chance to increase production further. And with the cost improvements from competing silicon solar panels seeming to level out, we may not see the pricing pressure of the last decade in solar manufacturing.
As some solar companies try to expand the services they provide to the market, First Solar is specializing in what it does best: produce solar panels. That’s served the company well, and given how cheap the stock is, I think it makes shares a good buy today.
Vehicle electrification opportunity
Howard Smith (XL Fleet): When investors study the electrification of transportation, most thoughts go to popular electric-vehicle (EV) makers like Tesla (NASDAQ:TSLA) or the myriad of EV makers that have gone public through special purpose acquisition companies (SPACs).
XL Fleet also took the SPAC route to the public markets, but it’s not one of the more well-known EV companies and is not an electric vehicle manufacturer. But several things make the company attractive for investors, including its current valuation.
The company configures commercial and municipal fleets with electrification options. It provides hybrid and plug-in hybrid electric drive systems for commercial fleet vehicles built by automakers and for large fleet owners like PepsiCo and FedEx. It’s also developing a fully electric offering and is adding XL Grid, a division to address the charging infrastructure needs of its more than 200 customers.
XL Fleet closed its SPAC merger in December 2020 to enter the public markets. Investors won’t see its first quarterly earnings report until the end of March 2021. Unlike many newly public EV companies, XL Fleet is not “pre-revenue.” Management said in its most recent investor presentation that it expects to triple its 2020 revenue to about $75 million in 2021. And as its product portfolio expands into Class 7 and 8 trucks, and with international expansion, it estimates revenue to ramp up quickly to around $1.4 billion in 2024. That expansion has already begun, with a new partnership announced this month for fully electric and plug-in hybrid Class 3 to Class 8 waste management trucks.
The company’s current market capitalization is approximately $2 billion. That’s less than 1.5 times 2024 sales if XL Fleet achieves its growth expectations. Though there are always risks, the company already has an established product with an established customer base. So it seems plausible XL Fleet can achieve those goals. Relative to other EV valuations, that makes XL Fleet stock look cheap at current levels.
One of my top stocks for 2021 is on sale right now
Jason Hall (Clearway Energy): Renewable energy producer Clearway Energy was a wonderful stock to own in 2020, returning more than 60% in total gains to investors. And even with these enormous gains under its belt, I called Clearway out as one of my top stocks for 2021 — and beyond — in January.
Or course, since then shares have fallen sharply, down by double-digits since the start of the year and off more than 20% from the highs in mid-January:
Nothing has really changed for Clearway since the calendar turned to 2021, and the company won’t report quarterly earnings until March 1. So why the big drop? It was most likely due to the huge gains in 2020, resulting in some investors “taking gains” over the past month.
And while it’s not pleasant if you bought shares recently, it certainly makes Clearway even more attractive to me. At recent prices, Clearway’s dividend yield is close to 4.8%, while the quarterly payout is up more than 50% over the past year. Moreover, investors should be able to count on steady, regular increases in the payout for years to come.
The economics of energy are becoming increasingly in favor of renewables, and global demand is on the rise. Whether you’re looking to capture a high-yield stream of income or grow your wealth for the long term, Clearway shares are both cheap and attached to a very high-quality business.
Cheap ways to invest in clean energy
All of these stocks have some form of value for investors, whether it’s cash on hand, a great dividend, or a low valuation. And that kind of value can be hard to find in clean energy, which is why these stocks are absurdly cheap today.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.