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3 Alternative Energy Stocks to Buy Amid Investment Concerns
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Wind energy, the largest source of renewable electricity generation in the United States, continues to make noticeable progress. The amount of new wind capacity installed in 2020 was more than three times the amount installed in 2010. This makes us optimistic on alternative energy stocks’ growth prospects. Also, increasing scope of the electric vehicle market is expected to boost the prospects of U.S. renewable stocks. However, the United States is lagging its Asian and European counterparts in terms of investments in hydrogen market, despite this market’s ample growth opportunities. The forerunners in the U.S. alternative energy industry are TotalEnergies SE (TTE - Free Report) , Equinor ASA (EQNR - Free Report) and Chesapeake Energy (CHK - Free Report) .
About the Indutsry
The Zacks Alternative Energy industry can be fundamentally segregated into two sets of companies. While one group is involved in the generation and distribution of alternative energy and electricity from sources like wind, natural gas, biofuel, hydro and geothermal, the other set is engaged in development, design and installation of renewable projects involving these alternative energy sources.The industry also includes a handful of stocks that offer fuel cell energy solutions, which have gained popularity as an affordable clean energy of late. Per a report by the U.S. Energy Information Administration, in 2020, consumption of renewable energy in the United States grew for the fifth year in a row, reaching a record high of 11.6 quadrillion British thermal units (Btu), or 12% of total U.S. energy consumption.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy continues to make noticeable progress in the United States. As stated by the American Clean Power Association (ACPA), wind is currently the largest source of renewable electricity generation in the United States, providing more than 7.4% of the country’s electricity. Per ACPA’s latest report published in July 2021, the amount of new wind capacity installed in the nation in 2020 is more than three times the amount installed in 2010. Factors like government policies such as extended federal Investment Tax Credit (ITC) for offshore wind energy along with extension of production tax credit have boosted overall wind capacity additions lately. Also, a steadily decreasing input price along with increasing flow of investments from all over the world has been instilling growth in the wind industry. Evidently, the unsubsidized cost of energy for wind power has declined 71% in 2020 since 2009. Looking ahead, wind projects totaling 34,757 MW were under construction or in advanced development at the end of December 2020. Surely this reflects the solid opportunity that the U.S. wind market currently boasts, which, in turn, should boost the overall expansion of the alternative energy industry.
Lag in Investment Demands Attention: Although hydrogen is a major growth catalyst in the U.S. clean energy space these days, the nation lags China, Japan and European nations in terms of infrastructure and research investments in the green hydrogen space. Notably, government and industry investment in hydrogen as an energy carrier adds up to $2 billion per year in Asia and the European Union, as stated by a report sponsored by major oil companies, automakers, hydrogen producers and fuel cell manufacturer and released by Greentech Media in October 2020. However, the U.S. Department of Energy’s funding for hydrogen and fuel cells has ranged from approximately $100 million to $280 million per year over the last decade, much lower than that invested by its Asian and European counterparts. So, while there remains room for growth in the green hydrogen space for the United States, the government must expand its funding for research and expansion of industry activities within the hydrogen market.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more and more individuals are choosing to switch from gasoline-powered vehicles to electric vehicles (EVs) each year, thereby boosting the market for EVs. In the United States, favorable government policies and support in terms of subsidies and grants, tax rebates and other non-financial benefits in the form of car pool lane access along with declining battery prices have been boosting the EV market. Notably, the U.S. EV market is expected to reach 6.9-million unit sales by 2025, reflecting a significant improvement from 1.4 million unit sales forecast for 2020, as estimated by Frost & Sullivan’s analysis. Such an impressive outlook surely bolsters the growth prospects of clean energy companies like Evergy (EVRG - Free Report) , which boasts the largest electric vehicle charging network in the United States, backed by growing initiatives to enhance the clean energy market in the nation.
Zacks Industry Rank Reflects Grim Outlook
The Zacks Alternative Energy industry is housed within the broader Zacks Oils-Energy sector. It carries a Zacks Industry Rank #180, which places it in the bottom 29% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few alternative energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Alternative Energy Industry has underperformed the Zacks S&P 500 composite as well as its own sector over the past year. The stocks in this industry have collectively gained 11.3% while the Oils-Energy Sector has risen 25.7%. The Zacks S&P 500 composite has rallied 33.8% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 4.43 compared with the S&P 500’s 15.63 and the sector’s 4.55.
Over the last five years, the industry has traded as high as 4.95X, as low as 3.57X, and at the median of 4.43X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Alternative Energy Stocks Worth Adding to Your Portfolio
TotalEnergies: Based in Paris, France, this company is among the top five publicly traded global integrated oil and gas companies based on production volumes, proved reserves and market capitalization. In July 2021, TotalEnergies signed a Corporate Power Purchase Agreement with Belgium’s Air Liquide, under which it will supply 50 GWh per year of renewable electricity over a period of 15 years. Such agreements are expected to enhance TotalEnergies’ global footprint.
The Zacks Consensus Estimate for TotalEnergies’ 2021 earnings has improved 12.4% in the past 60 days and indicates year-over-year improvement of 13.3%. The company delivered an average earnings surprise of 75.35% in the last four quarters. The company currently sports a Zacks Rank #1 (Strong Buy).
Chesapeake Energy: Based in Oklahoma City, OK, Chesapeake is an exploration and production company engaged in the acquisition, exploration and development of properties to produce oil, natural gas and NGLs from underground reservoirs. The company recently agreed to acquire Vine, an energy company focused on the development of natural gas properties in the over-pressured stacked Haynesville and Mid-Bossier shale plays in Northwest Louisiana for $2.2 billion. This buyout is expected to boost the stock’s position in the energy market.
The Zacks Consensus Estimate for Chesapeake’s 2021 earnings has improved 11.1% in the past 60 days while that for 2022 has improved 47% over the same time frame. The company delivered an average earnings surprise of 13.32% in the last four quarters. The company currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Equinor: Based in Stavanger, Norway, it is one of the premier integrated energy companies in the world, with operations spread across 30 countries. To combat climate change, the company is investing actively in renewable energy projects, comprising power generation from solar and wind energy. Equinor expects to boost production capacities from renewables to 4 to 6 GW by 2026. The company also aims to reduce the carbon intensity of its energy products by 50%, across its worldwide operations by 2050.
The Zacks Consensus Estimate for Equinor’s 2021 earnings has moved up 10.7% in the past 60 days while that for 2022 has risen 25.3%. The company boasts a long-term earnings growth rate of 48.4%. The company currently holds a Zacks Rank #2 (Buy).
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3 Alternative Energy Stocks to Buy Amid Investment Concerns
Wind energy, the largest source of renewable electricity generation in the United States, continues to make noticeable progress. The amount of new wind capacity installed in 2020 was more than three times the amount installed in 2010. This makes us optimistic on alternative energy stocks’ growth prospects. Also, increasing scope of the electric vehicle market is expected to boost the prospects of U.S. renewable stocks. However, the United States is lagging its Asian and European counterparts in terms of investments in hydrogen market, despite this market’s ample growth opportunities. The forerunners in the U.S. alternative energy industry are TotalEnergies SE (TTE - Free Report) , Equinor ASA (EQNR - Free Report) and Chesapeake Energy (CHK - Free Report) .
About the Indutsry
The Zacks Alternative Energy industry can be fundamentally segregated into two sets of companies. While one group is involved in the generation and distribution of alternative energy and electricity from sources like wind, natural gas, biofuel, hydro and geothermal, the other set is engaged in development, design and installation of renewable projects involving these alternative energy sources.The industry also includes a handful of stocks that offer fuel cell energy solutions, which have gained popularity as an affordable clean energy of late. Per a report by the U.S. Energy Information Administration, in 2020, consumption of renewable energy in the United States grew for the fifth year in a row, reaching a record high of 11.6 quadrillion British thermal units (Btu), or 12% of total U.S. energy consumption.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy continues to make noticeable progress in the United States. As stated by the American Clean Power Association (ACPA), wind is currently the largest source of renewable electricity generation in the United States, providing more than 7.4% of the country’s electricity. Per ACPA’s latest report published in July 2021, the amount of new wind capacity installed in the nation in 2020 is more than three times the amount installed in 2010. Factors like government policies such as extended federal Investment Tax Credit (ITC) for offshore wind energy along with extension of production tax credit have boosted overall wind capacity additions lately. Also, a steadily decreasing input price along with increasing flow of investments from all over the world has been instilling growth in the wind industry. Evidently, the unsubsidized cost of energy for wind power has declined 71% in 2020 since 2009. Looking ahead, wind projects totaling 34,757 MW were under construction or in advanced development at the end of December 2020. Surely this reflects the solid opportunity that the U.S. wind market currently boasts, which, in turn, should boost the overall expansion of the alternative energy industry.
Lag in Investment Demands Attention: Although hydrogen is a major growth catalyst in the U.S. clean energy space these days, the nation lags China, Japan and European nations in terms of infrastructure and research investments in the green hydrogen space. Notably, government and industry investment in hydrogen as an energy carrier adds up to $2 billion per year in Asia and the European Union, as stated by a report sponsored by major oil companies, automakers, hydrogen producers and fuel cell manufacturer and released by Greentech Media in October 2020. However, the U.S. Department of Energy’s funding for hydrogen and fuel cells has ranged from approximately $100 million to $280 million per year over the last decade, much lower than that invested by its Asian and European counterparts. So, while there remains room for growth in the green hydrogen space for the United States, the government must expand its funding for research and expansion of industry activities within the hydrogen market.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more and more individuals are choosing to switch from gasoline-powered vehicles to electric vehicles (EVs) each year, thereby boosting the market for EVs. In the United States, favorable government policies and support in terms of subsidies and grants, tax rebates and other non-financial benefits in the form of car pool lane access along with declining battery prices have been boosting the EV market. Notably, the U.S. EV market is expected to reach 6.9-million unit sales by 2025, reflecting a significant improvement from 1.4 million unit sales forecast for 2020, as estimated by Frost & Sullivan’s analysis. Such an impressive outlook surely bolsters the growth prospects of clean energy companies like Evergy (EVRG - Free Report) , which boasts the largest electric vehicle charging network in the United States, backed by growing initiatives to enhance the clean energy market in the nation.
Zacks Industry Rank Reflects Grim Outlook
The Zacks Alternative Energy industry is housed within the broader Zacks Oils-Energy sector. It carries a Zacks Industry Rank #180, which places it in the bottom 29% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates gloomy near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few alternative energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Alternative Energy Industry has underperformed the Zacks S&P 500 composite as well as its own sector over the past year. The stocks in this industry have collectively gained 11.3% while the Oils-Energy Sector has risen 25.7%. The Zacks S&P 500 composite has rallied 33.8% in the same timeframe.
One-Year Price Performance
Industry's Current Valuation
On the basis of trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 4.43 compared with the S&P 500’s 15.63 and the sector’s 4.55.
Over the last five years, the industry has traded as high as 4.95X, as low as 3.57X, and at the median of 4.43X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Alternative Energy Stocks Worth Adding to Your Portfolio
TotalEnergies: Based in Paris, France, this company is among the top five publicly traded global integrated oil and gas companies based on production volumes, proved reserves and market capitalization. In July 2021, TotalEnergies signed a Corporate Power Purchase Agreement with Belgium’s Air Liquide, under which it will supply 50 GWh per year of renewable electricity over a period of 15 years. Such agreements are expected to enhance TotalEnergies’ global footprint.
The Zacks Consensus Estimate for TotalEnergies’ 2021 earnings has improved 12.4% in the past 60 days and indicates year-over-year improvement of 13.3%. The company delivered an average earnings surprise of 75.35% in the last four quarters. The company currently sports a Zacks Rank #1 (Strong Buy).
Chesapeake Energy: Based in Oklahoma City, OK, Chesapeake is an exploration and production company engaged in the acquisition, exploration and development of properties to produce oil, natural gas and NGLs from underground reservoirs. The company recently agreed to acquire Vine, an energy company focused on the development of natural gas properties in the over-pressured stacked Haynesville and Mid-Bossier shale plays in Northwest Louisiana for $2.2 billion. This buyout is expected to boost the stock’s position in the energy market.
The Zacks Consensus Estimate for Chesapeake’s 2021 earnings has improved 11.1% in the past 60 days while that for 2022 has improved 47% over the same time frame. The company delivered an average earnings surprise of 13.32% in the last four quarters. The company currently sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Equinor: Based in Stavanger, Norway, it is one of the premier integrated energy companies in the world, with operations spread across 30 countries. To combat climate change, the company is investing actively in renewable energy projects, comprising power generation from solar and wind energy. Equinor expects to boost production capacities from renewables to 4 to 6 GW by 2026. The company also aims to reduce the carbon intensity of its energy products by 50%, across its worldwide operations by 2050.
The Zacks Consensus Estimate for Equinor’s 2021 earnings has moved up 10.7% in the past 60 days while that for 2022 has risen 25.3%. The company boasts a long-term earnings growth rate of 48.4%. The company currently holds a Zacks Rank #2 (Buy).