Following a stellar runup in 2020, clean energy stocks entered a sharp correction about a week into 2021. We can see this illustrated in the iShares S&P Global Clean Energy Index Fund (ICLN) exchange-traded fund, which gained 137% in 2020 but has lost 18% year to date.
It’s no wonder that clean energy stocks were due for a correction. This was one area of the market where speculative fervor was running hot as investors anticipated an acceleration in the world’s transition to renewable energy. When an increase in clean energy initiatives failed to immediately translate to profits on the same level as price runups, day traders and speculators began heading for the exit.
Speculation aside, there was another major factor responsible for clean energy stocks skyrocketing in 2020: plummeting oil and gas prices. Investors turned sour on oil and gas stocks as downward price pressure put even more stress onto this already-underperforming sector. Many began to see oil and gas as the way of the past and clean energy as the future, not just in terms of energy consumption but in terms of capital gains. In 2021, oil and gas prices began to rise again as people started to travel more despite the pandemic, causing a shift of investment dollars out of clean energy and back to oil and gas.
However, despite the recent correction, long-term growth drivers remain for clean energy. Countries and companies around the world are renewing their efforts to transition more to clean energy as climate change increases the frequency and severity of natural disasters such as wildfires, blizzards and hurricanes.
Top fund managers seem to be turning bullish on solar energy stocks once again. According to GuruFocus data, some of the top solar energy stocks saw a sharp increase in guru buys during the second quarter after the selloff that occurred in the first quarter, with Sunrun Inc. (RUN, Financial), First Solar Inc. (FSLR, Financial) and SolarEdge Technologies Inc. (SEDG, Financial) leading the pack. With favorable long-term growth drivers and renewed guru confidence, could these stocks be set for a rebound?
Sunrun
Based in San Francisco, Sunrun (RUN, Financial) 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 22 U.S. states.
As the leading provider of residential solar installations and services in the U.S., Sunrun is dedicated to expanding the country’s access to solar energy and should benefit from increasing demand for renewable energy sources. The company reported new records in installations for the second quarter of 2021, noting strong demand for residential solar as well as virtual power plants and integration with electric vehicles.
During the second quarter, eight gurus bought shares of Sunrun while two gurus sold the stock. Investors adding to their positions included Steven Cohen (Trades, Portfolio) and Jeremy Grantham (Trades, Portfolio).
As of the quarter’s end, the top guru shareholders of Sunrun were Philippe Laffont (Trades, Portfolio) with 8.30% of shares outstanding, Chase Coleman (Trades, Portfolio) with 3.43% and Andreas Halvorsen (Trades, Portfolio) with 2.17%.
On Sept. 8, shares of Sunrun traded around $44.86 for a market cap of $9.26 billion. The company has a GuruFocus financial strength rating of 2 out of 10 and a profitability rating of 3 out of 10. The Piotroski F-Score of 2 out of 9 and Altman Z-Score of 0.63 show that the business will likely need to raise additional liquidity to avoid bankruptcy. The top line continues to grow at a steady pace, though the bottom line has been trending down over the years as the company focuses on business expansion over profitability.
First Solar
First Solar (FSLR, Financial) is an Arizona-based semiconductor company that manufactures solar panels and utility-scale photovoltaic power plants. It also provides supporting services for its systems, including maintenance, construction, financing and end-of-life panel recycling.
Due to increasing competition in the project development business, First Solar has exited this sector to focus on expanding its more profitable solar panel manufacturing business. This marks a strategic shift in the company that could be beneficial for its long-term growth, as focusing on one area of expertise can often improve a company’s operational efficiency and industry reputation.
During the second quarter, five Gurus bought shares of First Solar while three Gurus sold the stock. Investors adding to their positions included Ken Fisher (Trades, Portfolio) and Louis Moore Bacon (Trades, Portfolio).
Pioneer investments is the largest guru shareholder of First Solar with 0.80% of shares outstanding, followed by Steven Cohen (Trades, Portfolio) with 0.18% and Jeremy Grantham (Trades, Portfolio) with 0.05%.
On Sept. 8, shares of First Solar traded around $95.43 for a market cap of $10.15 billion. GuruFocus rates the company’s financial strength with a score of 8 out of 10 and its profitability with a score of 5 out of 10. The interest coverage ratio of 22.14 and Altman Z-Score of 5.8 indicate a fortress-like balance sheet. The top line hasn’t shown much upward trajectory in recent years, but the bottom line has remained mostly in the green, which is a positive sign.
SolarEdge Technologies
SolarEdge Technologies (SEDG, Financial) is a photovoltaics company based in Israel. The company produces power optimizers, solar inverters and monitoring systems that are aimed at increasing the energy output of solar power arrays.
This company has been the main go-to component supplier for residential solar installers over the past decade. It has also expanded into commercial solar and energy storage, further helping to grow its business. Increased competition has been slowing down growth as more companies crop up in the solar energy sector, which SolarEdge is combating by diversifying into electric mobility solutions in Europe.
During the quarter, six gurus bought shares of SolarEdge while one guru sold the stock. Investors adding to their positions included Catherine Wood (Trades, Portfolio), while Ray Dalio (Trades, Portfolio) was among the new buyers.
As of the end of the quarter, Pioneer Investments was the top guru shareholder of SolarEdge with 0.89% of shares outstanding, followed by Grantham with 0.37% and Cohen with 0.10%.
On Sept. 8, shares of SolarEdge traded around $276 for a market cap of $14.46 billion. GuruFocus gives the company a financial strength rating of 6 out of 10 and a profitability rating of 6 out of 10. The cash-debt ratio of 1.01 and Altman Z-Score of 7.99 show the company is financially stable. The top and bottom lines have both been growing consistently over the years, and the company hasn’t reported a net loss since the second quarter of calendar 2014.
