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3 Alternative Energy Stocks to Buy Amid Rising Wind Turbine Cost
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Per the U.S. Energy Information Energy (EIA), wind generating capacity is projected to increase 8 GW next year. This should bolster alternative energy stocks’ prospects. However, the rising price of wind turbines and increasing capital costs might impact the growth rate of these stocks. Nevertheless, the boom in the electric vehicle market, which is expected to witness a CAGR of 25.4% during 2021-2028, has been a key growth catalyst for the alternative energy industry. The forerunners in the U.S. alternative energy industry are Constellation Energy Corporation (CEG - Free Report) , Crecent Energy Company (CRGY - Free Report) and Enlight Renewable Energy .
About the Industry
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 is engaged in the 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 American Clean Power Association, as of Jul 31, 2023, more than $270 billion in capital investment was announced for utility-scale clean energy projects and manufacturing facilities since federal incentives were signed into law last August.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy has been making noticeable progress in the United States. Per a report by EIA, wind turbines were the source of about 10.2% of total U.S. utility-scale electricity generation in 2022. Per EIA’s latest Short-Term Energy Outlook published in October 2023, wind generating capacity is projected to increase 8 GW next year, which will play a key role in increasing the share of electricity provided by renewables to 25% in 2024 from 22% in 2023. This reflects a solid opportunity for the U.S. wind market at present, which, in turn, should boost the overall expansion of the alternative energy industry.
Rising Costs & Other Headwinds: The steadily rising cost of renewable installations in recent times has been posing a significant challenge for the clean energy installers. In particular, the rising price of steel, which is used to make the giant wind turbine blades, has been pushing up the cost of wind installation lately.
Apart from steel, the most significant mineral requirements in the wind industry are copper, zinc, manganese, chromium, nickel, molybdenum and rare earths. The average price of these seven metals has risen 93% between January 2020 and March 2023 (as stated by an IMF report). Resultantly, the average per-megawatt cost of a wind turbine has increased 38% over the past two years, per a report by GlobalData.
In addition to these expenses, a rising interest rate environment in the country has pushed up the cost of capital, which may prompt investors to reassess their investment in long-term clean energy projects or may even dissuade them from investing in the short-term. Further, fallout in bilateral relationship with China can have a direct impact on the green energy industry. This is because China accounts for up to 90% of refining capacity for so-called rare earth elements used in electric motors, wind turbine generators and other green energy products, per the Energy Transitions Commission. So, any deterioration in the relationship with China might impact the green energy supply chain in the United States, thereby impacting the alternative energy industry.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more individuals are choosing to switch from gasoline-powered vehicles to 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 carpool lane access, along with declining battery prices, have been boosting the EV market. The U.S. EV market size is expected to reach $137.43 billon in 2028 at a CAGR of 25.4% from $28.24 billion in 2021, as estimated by Fortune Business Insights firm’s analysis. Such an impressive outlook bolsters the prospects of clean energy stocks, which offer the largest electric vehicle charging network in the United States.
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 #160, which places it in the bottom 36% 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 bleak 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.
The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s earnings estimate for the current fiscal year has moved down 9.6% to $1.23 per share since Aug 31.
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 and its sector over the past year. The stocks in this industry have collectively lost 21.9% in the past year compared with the Oils-Energy Sector’s 0.1% decline. The Zacks S&P 500 Composite has gained 10.9% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 8.17 compared with the S&P 500’s 12.63 and the sector’s 3.45.
Over the past five years, the industry has traded as high as 9.32X, as low as 8.09X and at the median of 8.73X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Alternative Energy Stocks to Buy
Constellation Energy Corporation: Based in Baltimore, MD, the company is the nation's largest producer of carbon-free energy and provides sustainable solutions to homes, businesses and public-sector customers. On Oct 16, 2023, Constellation announced that it is a major participant in the MachH2 hydrogen hub. This hub has been recently selected for up to $1 billion by the U.S. Department of Energy (DOE) as part of the bipartisan Infrastructure Investment and Jobs Act. The company will use a portion of the hub funding to build the world’s largest nuclear-powered clean hydrogen production facility at its LaSalle Clean Energy Center in Illinois. The project will produce an estimated 33,450 tons of clean hydrogen each year.
CEG boasts a long-term earnings growth rate of 23.3%. It currently carries a Zacks Rank #2 (Buy).
Price & Consensus: CEG
Crecent Energy Company: Based in Fort Worth, TX, the company is an independent oil and natural gas company that acquires, explores, develops, exploits and produces crude oil and natural gas properties. On Sep 6, 2023, Crescent Energy announced that it has entered into a definitive purchase agreement to acquire incremental working interest in its operated Western Eagle Ford assets for a total consideration of $250 million in cash, subject to customary purchase price adjustments.
Enlight Renewable Energy: Based in Tel Aviv, Israel, the company provides a renewable energy platform that develops, finances, constructs, owns and operates utility-sale renewable energy projects. On Oct 2, 2023, Enlight Renewable Energy announced that following a recent tender process, it has been awarded a 15-year inflation-linked Contract for Differences (CFD) for its Pupin wind farm in Serbia.
The company has a long-term earnings growth rate of 27.4%. It currently carries a Zacks Rank #2.
Price & Consensus: ENLT
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3 Alternative Energy Stocks to Buy Amid Rising Wind Turbine Cost
Per the U.S. Energy Information Energy (EIA), wind generating capacity is projected to increase 8 GW next year. This should bolster alternative energy stocks’ prospects. However, the rising price of wind turbines and increasing capital costs might impact the growth rate of these stocks. Nevertheless, the boom in the electric vehicle market, which is expected to witness a CAGR of 25.4% during 2021-2028, has been a key growth catalyst for the alternative energy industry. The forerunners in the U.S. alternative energy industry are Constellation Energy Corporation (CEG - Free Report) , Crecent Energy Company (CRGY - Free Report) and Enlight Renewable Energy .
About the Industry
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 is engaged in the 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 American Clean Power Association, as of Jul 31, 2023, more than $270 billion in capital investment was announced for utility-scale clean energy projects and manufacturing facilities since federal incentives were signed into law last August.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy has been making noticeable progress in the United States. Per a report by EIA, wind turbines were the source of about 10.2% of total U.S. utility-scale electricity generation in 2022. Per EIA’s latest Short-Term Energy Outlook published in October 2023, wind generating capacity is projected to increase 8 GW next year, which will play a key role in increasing the share of electricity provided by renewables to 25% in 2024 from 22% in 2023. This reflects a solid opportunity for the U.S. wind market at present, which, in turn, should boost the overall expansion of the alternative energy industry.
Rising Costs & Other Headwinds: The steadily rising cost of renewable installations in recent times has been posing a significant challenge for the clean energy installers. In particular, the rising price of steel, which is used to make the giant wind turbine blades, has been pushing up the cost of wind installation lately.
Apart from steel, the most significant mineral requirements in the wind industry are copper, zinc, manganese, chromium, nickel, molybdenum and rare earths. The average price of these seven metals has risen 93% between January 2020 and March 2023 (as stated by an IMF report). Resultantly, the average per-megawatt cost of a wind turbine has increased 38% over the past two years, per a report by GlobalData.
In addition to these expenses, a rising interest rate environment in the country has pushed up the cost of capital, which may prompt investors to reassess their investment in long-term clean energy projects or may even dissuade them from investing in the short-term. Further, fallout in bilateral relationship with China can have a direct impact on the green energy industry. This is because China accounts for up to 90% of refining capacity for so-called rare earth elements used in electric motors, wind turbine generators and other green energy products, per the Energy Transitions Commission. So, any deterioration in the relationship with China might impact the green energy supply chain in the United States, thereby impacting the alternative energy industry.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more individuals are choosing to switch from gasoline-powered vehicles to 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 carpool lane access, along with declining battery prices, have been boosting the EV market. The U.S. EV market size is expected to reach $137.43 billon in 2028 at a CAGR of 25.4% from $28.24 billion in 2021, as estimated by Fortune Business Insights firm’s analysis. Such an impressive outlook bolsters the prospects of clean energy stocks, which offer the largest electric vehicle charging network in the United States.
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 #160, which places it in the bottom 36% 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 bleak 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.
The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s earnings estimate for the current fiscal year has moved down 9.6% to $1.23 per share since Aug 31.
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 and its sector over the past year. The stocks in this industry have collectively lost 21.9% in the past year compared with the Oils-Energy Sector’s 0.1% decline. The Zacks S&P 500 Composite has gained 10.9% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 8.17 compared with the S&P 500’s 12.63 and the sector’s 3.45.
Over the past five years, the industry has traded as high as 9.32X, as low as 8.09X and at the median of 8.73X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Alternative Energy Stocks to Buy
Constellation Energy Corporation: Based in Baltimore, MD, the company is the nation's largest producer of carbon-free energy and provides sustainable solutions to homes, businesses and public-sector customers. On Oct 16, 2023, Constellation announced that it is a major participant in the MachH2 hydrogen hub. This hub has been recently selected for up to $1 billion by the U.S. Department of Energy (DOE) as part of the bipartisan Infrastructure Investment and Jobs Act. The company will use a portion of the hub funding to build the world’s largest nuclear-powered clean hydrogen production facility at its LaSalle Clean Energy Center in Illinois. The project will produce an estimated 33,450 tons of clean hydrogen each year.
CEG boasts a long-term earnings growth rate of 23.3%. It currently carries a Zacks Rank #2 (Buy).
Price & Consensus: CEG
Crecent Energy Company: Based in Fort Worth, TX, the company is an independent oil and natural gas company that acquires, explores, develops, exploits and produces crude oil and natural gas properties. On Sep 6, 2023, Crescent Energy announced that it has entered into a definitive purchase agreement to acquire incremental working interest in its operated Western Eagle Ford assets for a total consideration of $250 million in cash, subject to customary purchase price adjustments.
The company boasts a long-term earnings growth rate of 1.4%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price & Consensus: CRGY
Enlight Renewable Energy: Based in Tel Aviv, Israel, the company provides a renewable energy platform that develops, finances, constructs, owns and operates utility-sale renewable energy projects. On Oct 2, 2023, Enlight Renewable Energy announced that following a recent tender process, it has been awarded a 15-year inflation-linked Contract for Differences (CFD) for its Pupin wind farm in Serbia.
The company has a long-term earnings growth rate of 27.4%. It currently carries a Zacks Rank #2.
Price & Consensus: ENLT