Stocks to buy

The International Energy Agency (IEA) estimates that by 2025, 35% of the world’s electricity supply will be renewable energy. If that’s not a reason to consider renewable energy stocks to buy, I don’t know what is.  In fact, according to the IEA, most of the increased demand for electricity over the next three years will be from China and other large Asian economies. The agency estimates demand will increase by 4.6% annually in Asia Pacific, nearly five times the Americas, and eight times the U.S.

So, if you’re looking for renewable energy stocks to buy, a good place would be companies already operating renewable energy projects in Asia Pacific and have projects in the pipeline. It could be operators, investors, manufacturers, etc. To find possible options, I’ll use the actively-managed Virtus Duff & Phelps Clean Energy ETF (NYSEARCA:VCLN) for inspiration. It has a manageable 44 holdings and covers clean energy producers, technology and equipment manufacturers for renewable energy, and companies that distribute clean energy. Here are my three renewable energy stocks to buy.

NEE NextEra Energy $75.69
BEPC Brookfield Renewable $31.97
FSLR First Solar $211.10

NextEra Energy (NEE)

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NextEra Energy (NYSE:NEE) gives you the best of both worlds. It owns the Florida Power & Light Company, America’s largest utility with 5.8 million customer accounts; it also owns NextEra Energy Resources LLC, the world’s largest wind and solar renewable energy producer. 

Because this is about renewable energy stocks, I will focus on NextEra Energy. It has 30 gigawatts (GW) of clean energy in operations, including 22 GW of wind (68% of its generation and storage capacity, 5 GW of solar power (14%), 2 GW of nuclear (7%), and 1 GW of battery storage (4%). The remaining 7% is from natural gas and oil. These assets total $71 billion. 

NextEra Resources has a 19 GW backlog of wind, solar, and storage contracts to keep it busy for the next few years. And that’s not even considering the green hydrogen opportunities it’s undertaking. But, of course, these things all take capital. That’s why NEE spun off NextEra Energy Partners LP (NYSE:NEP) in June 2014.

At the time of the spin-off, NEP had nearly 1 GW of contracted energy projects in North America.  Today, it’s approximately 10x that. NEE owns 46.2% of NEP’s operating company.  In the next 3-5 years, NEE’s share price will exceed $100. Yielding a reasonable 2.5%, why not get paid to wait for the business to come to NextEra?

Brookfield Renewable (BEPC)

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Brookfield Renewable (NYSE:BEPC), one of the Brookfield Asset Management (NYSE:BAM) affiliate businesses, is used to making big acquisitions in the renewable energy space. For example, in Oct. 2022, BEPC partnered strategically with Canadian uranium producer Cameco (NYSE:CCJ) to acquire Westinghouse Electric, one of the world’s largest nuclear services businesses. 

The price tag? Approximately $7.88 billion, with Brookfield and its institutional partners putting in $2.3 billion equity for 51% of the strategic partnership.

On March 20, Brookfield Renewable announced that it would acquire the 50% of Spanish solar power operator X-ELIO that it didn’t already own from KKR & Co. (NYSE:KKR). The deal valued the entire business at $2.68 billion. Once completed, it will own a renewable energy company with 3 GW of capacity. 

Brookfield finished 2022 with 25,377 MW capacity with more than 110,000 MW in development. In 2022, it generated $4.7 billion in revenue, with funds from operations of $1.01 billion. A Brookfield entity combined with renewable energy equals a very bright future.

First Solar (FSLR)

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First Solar (NASDAQ:FSLR) is one of the world’s leading manufacturers of solar panels. Its stock’s been on quite a run since last July, up 174%, considerably higher than the 4% return from the S&P 500. Of course, it’s an apples-to-oranges comparison, but you can’t help but be impressed with this kind of return.  

While the entire sector is hot due to the incentives provided by the Inflation Reduction Act for Americans to buy solar panels and clean energy, First Solar could be a big beneficiary of the legislation, according to UBS analyst Jon Windham. “[First Solar], the most significant beneficiary of the Inflation Reduction Act (IRA) with high visibility on capacity, revenue and earnings growth through 2026,” Barron’s reported Windham’s comments from early March. 

First Solar estimates it will receive at least $660 million in IRA tax credits. In 2023, it expects to earn $3.5 billion at the midpoint of its guidance with $7.50 a share in earnings. It currently trades at 28x its 2023 earnings. While that might seem like a high valuation in these markets, First Solar has 67.7 GW of contracted backlog, with 38% of it to be delivered in 2026 and beyond. So it’s got plenty of work to keep it busy. 

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.