3 Renewable Energy Stocks with Upside

Replacing traditional fossil fuels with renewable energy sources seemed like a longshot a few years ago. Coal and natural gas companies had dominant business models for decades while renewable energy sources were considered expensive and less efficient. However, things are changing quickly thanks to ongoing cost reductions in renewable energy technology, increased awareness about climate change, and governments around the world adopting policies that encourage renewable energy with financial incentives.

2020 was shaping up to be a banner year for renewable energy until the pandemic hit and slowed down the deployment of renewables. That doesn’t change the fact that renewable energy companies have a ton of potential in the coming years, particularly if the Democrats wind up winning the upcoming presidential election. Let’s take a look at 3 renewable energy stocks with upside below.

Enphase Energy (NASDAQ:ENPH)

One of the standout stocks this year in the renewable energy sector is Enphase Energy, a company that produces solar power system solutions so that people can use solar energy to power their homes. The solar power inverters that Enphase has created are innovative in that they allow solar power to be fed directly into power grids. The stock is up over 125% year-to-date and continues to look like one of the best investment opportunities in the sector. It’s also positive that the company has a strong presence in California, where many residents have been sporadically left without power over the last several years due to wildfires.

Solar installations in the U.S. were rising substantially before the pandemic but the demand has dropped sharply in the short-term. This resulted in Enphase reporting a year-over-year revenue decline of 39% in Q2. However, shares have rallied since the earnings report and it’s clear that investors are bullish on the growth prospects of this renewable energy player. There were some bright spots in the Q2 report, including a record 39.6% gross margin along with a 71% year-over-year increase in free cash flow. Enphase Energy is a stock to watch if you are interested in a company that is poised to capitalize on the growing residential renewable energy storage market. 

NextEra Energy Partners (NYSE:NEE)

When you are looking at companies involved in renewable energy, they will typically either be involved in solar power, wind power, or battery storage. NextEra Energy Partners is intriguing because it is involved in all three. The company was formed as a spinoff from NextEra Energy (NYSE:NEE) which is the largest producer of solar and wind power in the world. NextEra Energy Partners was created to acquire new renewable energy assets with long-term contracts, meaning that shareholders can anticipate stable cash flows as the company expands its portfolio.

The stock is attractive thanks to a 4% dividend yield along with a solid growth pipeline thanks to its connection with the massive NextEra Energy. Dividend growth investors should be interested as the company expects to continue adding cash-flowing clean energy assets to its portfolio over time. With renewables in high demand and becoming cheaper than fossil fuels in some instances, the future could be bright for NextEra Energy Partners.

Brookfield Renewable Partners (NYSE:BEP)

The last renewable energy stock we will mention is Brookfield Renewable Partners, a company with over 5,300 power generation facilities around the world. It’s one of the largest owners of renewable assets globally and the global leader in hydroelectric power which makes up 64% of the company’s portfolio. Per the company’s website, Brookfield’s investment objective “is to deliver long-term annualized total returns of 12-15% including annual distribution increases of 5-9% from organic cash flow growth and project development”. This is a strong selling point for investors that are looking for growth and consistency in what can be a volatile industry.

Brookfield has increased its distribution by a compounded annual growth rate of 6% since the year 2000 and continues to reward long-term investors with consistent dividend payments. The stock currently has a 4.27% dividend yield and the company continues to acquire new businesses that are expanding its reach. Brookfield completed a merger with Terraform Power in Q2 and is also in the process of acquiring one of the largest solar development projects in the world located in Brazil. If you are interested in owning a diversified business in the renewable energy sector with strong liquidity and growing dividends, Brookfield Renewable Partners is a strong option.