The verdict is in: Once thought to be a long shot, the solar industry is on the cusp of transforming our world. However, technological advances and society-changing benefits don’t always produce spectacular benefits for investors. Just ask shareholders of recently bankrupt SunEdison. Obviously, exponential growth and constant change are bound to produce a few casualties — investors will need to tread carefully.
With this in mind, some of The Motley Fool’s best and brightest put their heads together and came up with three solar stocks that are not only bound to benefit from a solar-powered future but are also more than likely to provide Foolish investors with a sense of safety that has become (with good reason) all the more important in this industry.
Read on to learn more about three solar stocks to buy and hold for the long term.
Many investors consider the term “reliable solar stock” to be an oxymoron — and they’re mostly right. But over the past few years, First Solar (NASDAQ:FSLR) has proved itself to be one of the steadiest solar stocks around.
For starters, this manufacturing company has continuously focused on its bottom line. While it might make sense that other competitors would worry about their new product lines and capturing market share, First Solar hasn’t been willing to sacrifice a strong financial model to go for broke in the solar business, and has reported positive earnings for seven of the past eight quarters.
As with most companies in an emerging sector, First Solar has hit roadblocks — the corporation’s panel technology fell behind for a bit and has only recently caught back up with its competitors’. But throughout the years, First Solar’s business has steadily improved. Annual revenue has climbed 30% over the past five years, and net income is up 56%.
First Solar shares have had their ups and downs alongside the industry, but its stock has headed steadily higher since 2012 and currently enjoys some of the lowest volatility of any solar stock on the market. These are the sort of metrics First Solar investors have now come to expect, and it’s why First Solar is one of the best solar stocks to buy and hold.
SunPower does it all, offering integrated solar power systems to power plants as well as both residential and commercial customers. Efficiency is the name of the game with solar — especially where space is limited and sunlight less predictable — and this is precisely where SunPower’s edge lies. Its X-series cells, arguably one of the best products on the market today, if not the best overall, convert sunlight into electricity at an astronomical 22% rate.
Its first-quarter bottom line was a bit disappointing, coming in at a GAAP loss of $0.30, but the picture improves when we look to the future. Analysts polled by S&P Global Market Intelligence expect GAAP earnings this year of $0.57, which will grow to an anticipated $1.50 by fiscal 2018. It should also be noted that SunPower only recently spun off its interest in its partially owned yieldco, 8point3 Energy Partners (NASDAQ:CAFD). Capital structure changes inevitably make earnings predictability difficult, and the company could be forgiven for not meeting Wall Street estimates on the mark.
While SunPower doesn’t have the strongest balance sheet in corporate America, it certainly finds itself on a more solid footing than recently bankrupt SunEdison. As of April 3, the company sported a debt-to-equity ratio of 0.69 and a current ratio of 2.3, which, when coupled with SunPower’s respectable position within the industry, makes for a place of stability amid the solar sector’s recent carnage.
In all, SunPower has the technology and installation experience to warrant the attention not only of solar customers but ofFoolish investors as well.
There isn’t a lot about the solar industry that’s been stable long term. We’ve seen solar-panel manufacturers rise and fall, developers have done the same, and new technology has been so hard to commercialize that venture capital to the industry has practically dried up. That makes finding “buy and hold” solar stocks really hard for investors.
The one stable business structure that’s emerged from the industry is the yieldco, a company that owns renewable-energy projects with long-term contracts and pays cash flows to investors in the form of a dividend. And 8point3 Energy Partners is, in my opinion, the most stable of all the yieldcos. It sells energy to utilities, building owners, and homeowners on long-term contracts, with a weighted average life of 21.3 years, and there’s very little cost associated with running solar projects. So cash flow is very predictable, unlike that of a lot of solar companies today.
It also has technologically differentiated and well-capitalized sponsors in SunPower and First Solar, and has a conservative balance sheet itself. We’ve seen how important this has become after yieldcos such as Abengoa Yield, TerraForm Power, and TerraForm Global have been put into question because of the insolvency of their parents. That’s a very low risk for 8point3 Energy Partners.
On top of these operational benefits, the stock has a 6% dividend yield that’s expected to grow around 15% per year. As renewable energy becomes even more volatile, this is a stock that will provide investors value for many years to come.
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Justin Loiseau has no position in any stocks mentioned. Sean O’Reilly has no position in any stocks mentioned. Travis Hoium owns shares of 8point3 Energy Partners LP, First Solar, and SunPower. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.