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Margaret Moran
Margaret Moran
Articles (349) 

5 Solar Stocks Outperforming FAANG in 2020

Year to date, these clean energy holdings have returned more than big tech

Although stock markets plummeted back in February due to the Covid-19 crisis, major market indexes in the U.S. have not only regained their losses, but soared on to new heights, primarily on the strength of mega-cap tech stocks such as FAANG.

FAANG – or Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Netflix (NASDAQ:NFLX) and Google's parent company Alphabet (NASDAQ:GOOG)(NASDAQ:GOOGL) – are only a few of the many tech and tech-adjacent stocks that were able to capitalize on the pandemic to increase their profits. However, they have had an outsized effect on indexes due to their size. Year to date, Facebook's share price is up 30%, Apple gained 60%, Amazon spiked 74%, Netflix advanced 62% and Alphabet has increased 16% (split-adjusted).

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However, some investors may be surprised to find that many of the biggest returns in 2020 have come not from big tech, but from renewable energy stocks, with solar panel producers and distributors in particular seeing an enormous spike in prices. The iShares S&P Global Clean Energy Index Fund (ICLN) ETF has a year-to-date return of over 73%, outpacing even the Nasdaq's 28%.

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The renewable energy sector has plenty of room to grow as increasing climate change concerns and the current lack of profitability that comes with investing in most oil companies are pushing individuals, corporations and governments alike to invest in clean energy generation. In light of these factors, investors may be interested in the following stocks, as they hold leading industry positions and have seen their share prices increase more than any of the FAANG stocks so far this year.

Sunrun

Based in San Francisco, Sunrun Inc. (NASDAQ:RUN) is a home solar panel and battery storage company. It provides solar panels, batteries, installation, education and other solar power equipment and services through both rental and purchase agreements to residential homeowners in 23 U.S. states. On Oct. 8, Sunrun completed its acquisition of Vivint Solar (previously VSLR) in an all-stock transaction, solidifying its position as the home solar installation leader in the U.S.

Shares of Sunrun have gained 353% year to date to trade around $56.82 on Oct. 21 for a market cap of $11.14 billion.

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GuruFocus gives the stock a financial strength rating of 2 out of 10 and a profitability rating of 4 out of 10. The cash-debt ratio of 0.1 and Altman Z-Score of 1.61 indicate the company could have liquidity issues over the next couple of years. Growing revenue and positive earnings are offset by negative operating margins and net margins.

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JinkoSolar Holding

JinkoSolar Holding Co. Ltd. (NYSE:JKS) is the largest manufacturer of solar panels in the world. The Shanghai-based Chinese company was founded in 2006 and went public in 2010. It designs, develops, produces and markets photovoltaic products and solutions for commercial and residential customers in more than 15 countries.

Shares of JinkoSolar have gained 289% year to date to trade around $68.61 on Oct. 21 for a market cap of $3.05 billion.

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GuruFocus gives the stock a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of 1.4 indicates the company could potentially face liquidity issues, but the interest coverage ratio of 6.25 shows that it has enough to cover its debt payments. The return on invested capital has been higher than the weighted average cost of capital in recent quarters, meaning the company is creating value for shareholders.

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Azure Power Global

Azure Power Global Ltd. (NYSE:AZRE) is an Indian independent power producer headquartered in New Delhi. Founded in 2008, the company built India's first utility-scale solar project. Due to rigorous cost engineering and its status as a utility company, Azure Power is able to sell energy to government and commercial clients at predictable fixed prices.

Shares of Azure Power have gained 135% year to date to trade around $27.44 on Oct. 21 for a market cap of $1.32 billion.

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GuruFocus gives the stock a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of 0.88 and interest coverage ratio of 0.78 indicate the company is at high risk of bankruptcy and will need to raise additional liquidity to keep functioning. Revenue has been on a solid uptrend, but Ebitda has decline in recent quarters.

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Scatec Solar

Based in Oslo, Norway, Scatec Solar ASA (OSL:SSO) develops, owns and operates solar power plants in emerging markets around the world, focusing on attractive government contracts in countries that have relatively little existing power infrastructure compared to developed nations. Scatec recently signed an agreement to acquire all shares of hydropower developer SN Power from its existing owner Norfund for a total equity value of $1.2 billion.

Shares of Scatec Solar have gained 98% year to date to trade around 245.80 Norwegian kroner ($26.66) on Oct. 21 for a market cap of 33.84 billion kroner.

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GuruFocus gives the stock a financial strength rating of 3 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of 1.51 shows the potential for liquidity issues, but the cash-debt ratio of 0.29 is higher than 63% of other companies in the utilities – independent power producers industry. The company has a three-year revenue growth rate of 10% and a three-year Ebitda growth rate of 6.4%.

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Canadian Solar

Headquartered in Guelph, Canada, Canadian Solar Inc. (CSIQ) manufactures solar photovoltaic modules and runs large-scale commercial and residential solar projects. The company was founded in 2001 and has operations in over 150 countries, including the U.S., Australia, China and Japan. Its modules have received multiple awards for their performance-cost ratio.

Shares of Canadian Solar have gained 99% year to date to trade around $39.51 on Oct. 21 for a market cap of $2.33 billion.

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GuruFocus gives the stock a financial strength rating of 4 out of 10 and a profitability rating of 6 out of 10. The Altman Z-Score of 1.54 and cash-debt ratio of 0.25 are lower than 84% of other companies in the semiconductors industry. The ROIC is often higher than the WACC, though this was not the case for the most recent quarter, in which the company recorded a ROIC of 3.15% compared to a WACC of 4.81%.

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Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research and/or consult registered investment advisors before taking action in the stock market.

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