Among the vaunted gainers from the Trump victory, energy stocks received a boost as soon as news of his win trickled in. The President elect’s promises to revive the coal industry and provide policy-related assistance to the oil and gas industry have come as a breather for the beleaguered sector.
In contrast, Trump’s stance on sustainable energy options, such as solar power, has been interpreted as a body blow to companies from the sector by several market watchers. However, evidence on the ground tells a different tale and picking stocks from the sector may still be a smart investment option.
Reviving Conventional Energy
Trump’s proposals on energy are among his most contentious campaign promises but they have managed to boost the sector, at least for now. Among other proposed actions is the headline making pledge to “save” the U.S. coal sector. The President elect has also promised to help the oil and gas industry by reducing regulation and encouraging more exploration and production activities.
These pronouncements helped the likes of Peabody Energy Corporation (BTUUQ - Free Report) and Arch Coal Inc. (ARCH - Free Report) soar as soon as his victory was announced. Other, more profitable coal producers such as Cloud Peak Energy Inc. (CLD - Free Report) also experienced gains. Stocks from the oil and gas sector also moved northward on Nov 9 and afterward.
Renewable Energy Slumps
In sharp contrast, solar power company SunPower Corporation (SPWR - Free Report) suffered its sharpest decline in three months on Nov 9, slumping 14%. The world’s largest supplier of turbines, Vestas Wind Systems A/S, declined 8.5% in Copenhagen.
Investor concerns heightened since Trump has promised to reverse Obama’s clean energy proposals. He has promised to roll back the investment tax credit for solar power and the Environmental Protection Agency’s Clean Power Plan. Also, Trump has spoken about withdrawing U.S. support for the Paris Agreement.
However, all these actions seem quite unrealistic at this moment. First, the investment tax credit was passed with bipartisan support from a Republican dominated Congress in Dec 2015 and Trump may not receive Congressional support on this count. Also, if Trump does indeed step back from the Paris Agreement, it would help the coal industry only notionally. In fact, the agreement could only help to create an international market for clean energy and transportation technology, an area in which the U.S. is a world leader.
Green Options Remain Bright
The only real worry for alternative energy from a Trump administration is the elimination of the Clean Power Plan. Such a move could delay the process of the retirement of coal-fired plants and a reduction in the emphasis for greater solar power usage. But even if this does happen, the number of coal fired plants is expected to fall nearly 30% by 2030.
In contrast with a sector beleaguered by debt and several other problems, the outlook for alternative energy is bright. Currently, the sector holds a significant advantage even in terms of government policy. According to renewable portfolio standards mandated by 29 states and the District of Columbia, electricity retail companies are required to provide an increasingly higher percentage of power from renewable energy sources.
More importantly, costs are falling for wind and solar power, increasing their competiveness. These advantages remain in place across several markets even without the aid of subsidies. Also, the sector is boosting job growth and increasing exports, economic benefits which Trump cannot fail to recognize. The President elect is likely to focus on results and in doing so he is likely to notice the opportunity renewable energy represents.
Sustainable and renewable energy options are facing a temporary downslide in the wake of Trump’s election victory. But given their long-term advantages, such a phase can only be short-lived and they could return to their winning ways soon.
Adding such stocks to your portfolio remains a prudent option. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.
Sunrun Inc. (RUN - Free Report) develops, owns, manages and sells residential solar energy systems in the U.S.
Sunrun has expected earnings growth of 36.2% for the current year. Its earnings estimate for the current year has improved by 82.1% over the last 30 days. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Vivint Solar, Inc. (VSLR - Free Report) is a provider of residential, commercial and industrial solar energy systems in the U.S.
Vivint Solar has a Zacks Rank #2 (Buy). The company has expected earnings growth of 30.9% for the current year. Its earnings estimate for the current year has improved by 19% over the last 30 days.
Ballard Power Systems Inc. (BLDP - Free Report) focuses on developing and bringing to market proton exchange membrane fuel cell systems for transportation, stationary, and portable applications.
Ballard Power Systems has a Zacks Rank #2. The company has expected earnings growth of 20% for the current year. Its earnings estimate for the current year has improved by 7.9% over the last 30 days.
Hannon Armstrong Sustainable Infrastructure Capital, Inc. (HASI - Free Report) is a REIT which is a provider of debt and equity financing for infrastructure projects related to energy efficiency and renewable energy.
Hannon Armstrong has a Zacks Rank #2. The company has expected earnings growth of 38.8% for the current year. Its earnings estimate for the current year has improved by 6.4% over the last 30 days.
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