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The S&P Global Clean Energy Index is down by 9.53% YTD; a consequence of rising interest rates and growing fear of inflation. The Index ended 2020 at 1790.76 points and rose to a high of 2113.53 point on the 8th of January, 2021, it then hovered around 2000 points until February 8 when it started declining sharply as fear of rising interest rates grows.
As the US 10 years Treasury yield rose by over 70% in the past 40 days, investors are afraid of the rising rates and the growing risk of inflation, the fear is causing them to sell-off stock positions that could be deterred by the rising interest rates. Renewable energy sector is one of the sectors most likely to be deterred by the rising rates.
Check out this breakdown of why technology and solar energy stocks are melting down. The growing unease around renewable energy stocks over the rising interest rates is founded in the fact that renewable energy companies relies on debt financing to carryout projects that are the bedrock of their growth.
High interest rates will eat up renewable energy companies’ margins, moreover, inflation will also increase their cost of revenue further eating up margins and making the companies less desirable.
Although the fear of inflation and rising interest rates is rightly founded, the reality is that the current 10 years Treasury yield of 1.64% is considerably low compared to where it was before the outbreak last year. On the 2nd of January 2020, the US 10 years Treasury yield stood at 1.88% and a year before that (2nd January, 2019) it stood at 2.66%.
Is this a case of investors getting paranoid over nothing?
It may very well be, because when the rates stood at 2.66% in 2019, investors were willingly to hold solar energy stocks at that rate. Solar energy stocks flourished at a rate that’s over 50% more than the current rates, relative to 2019, the current rates are crazily cheap and favorable for solar energy stocks.
Nonetheless, many solar energy stocks are down by over 30% off their recent highs, creating an opportunity for investors who are willing to take the risk to buy some of these stocks at a discount. Moreover, these stocks can still go down, further discounting will increase the risk-reward ratio.
Closely watching these names and gradually stacking them in your portfolio as you monitor movements and sentiments in the market could become wildly rewarding when they eventually take a 180 degree turn and start heading north.
Do note that the Fed have reinstate their commitment to keep rates as low as possible till the economy recovers. Fed Chairman Powell recently reinstate that the Fed will maintain Easy-Money policies to keep Treasury yields as low as needed until it hits employment goals and inflation is sustainably at 2%.
If you’re looking for Solar Energy stocks to eventually buy at a great discount or start buying amidst sell-off, here are 3 incredibly cheap solar energy stocks to consider:
1. First Solar, Inc. (NASDAQ: FSLR)
First Solar is one of the leading manufacturers of solar panels, and a global developer, financier, and operator of utility-scale (grid-connected) photovoltaic power stations. The company also runs recycling services in the U.S., Germany, and Malaysia for its photovoltaic modules.
Technologically, the company has a superior PV modules that are based on cadmium telluride (CdTe). It uses an advanced thin CdTe film on glass to convert sunlight into electricity. And its PV modules are relatively cheap and reliable, which from a product standpoint gives the company a strong competitive advantage.
FSLR trades at 3x sales, has a forward and trailing P/E ratio under 25, and it has a promising Price-Earnings-Growth ratio of 0.75 based on expected growth over the next five years. Based on Zacks Consensus Estimate, the company has an expected earnings growth rate of 14.7% in 2021. The company has a relatively strong balance sheet with a total debt of USD 482.27 million bring its total debt/equity ratio to a very low 8.73.
When it comes to the solar energy sector, First Solar is one of the few established names, it reported a total revenue of USD 2.71 billion in 2020 and has an USD 8 billion market cap. The company’s stock is down by almost 20% as a result of recent sell-off amidst fear of the rising 10 years US Treasury yield, and this makes a relatively cheap FSLR even cheaper.
2. JinkoSolar Holding Co., Ltd. (NYSE: JKS)
JinkoSolar is one of the leading and largest manufacturers of solar panels in China and globally. The company runs a vertically integrated solar business, offering a diverse portfolio of solar products and services to utility, commercial, and residential customer base.
The company produces one of the most advanced, if not the most advanced, monocrystalline solar panels. It also has one of the largest production facilities with a collective production capacity of 20 GW, 11 GW, and 25 GW for mono wafers, solar cells, and solar modules respectively.
7 out of its 9 production facilities are in China, while the other two are in the United States and Malaysia, and since the majority of JinkoSolar’s production facilities are in China, the company benefits from cheaper production costs in comparison to its US-based counterparts. JinkoSolar is currently constructing a 20 GW production facility in Yunnan province, China, for its battery pieces, and upon completion, the facility will become the largest of its kind globally.
China is the largest market for solar PV, it added a record 40 GW of solar power in 2020 alone, bringing its total installed solar capacity to over 240 GW. JinkoSolar has the largest market share in China, the largest market for solar PV, how convenient!
JinkoSolar’s global shipment is relatively huge, it recorded 18.75 GW of solar photovoltaic shipment in 2020, with only LONGi Solar ranking above it with 20 GW shipment.
JKS currently trades under $50 and is currently down over 20% YTD, the company has a market cap of USD 2.24 billion and a PEG ratio of 0.95 based on expected growth over the next five years. It P/E ratio currently stands at 15.56 which makes it a relatively cheap solar stock, nonetheless, over the past 12 months, the company’s stock has risen 200% before the recent sell-off.
Since getting listed in the New York Stock Exchange, JKS has had its ups and downs, however, with the Biden’s administration expected to continue massively pushing for the shift to renewable energy, JinkoSolar is one of the major companies expected to benefit massively from the push.
The company has continued to beat expectations quarter after quarter, delivering impressively in 2020 in spite of the pandemic. JKS is a solid long-term play in the solar energy sector, as long as solar energy is a ‘thing’, JKS is a major ‘thing’.
3. Canadian Solar, Inc. (NASDAQ: CSIQ)
Canadian Solar is a major global manufacturer of solar photovoltaic products that also develops, runs, and sells solar power plants globally. Founded in 2001, the company is still run by its founder, Shawn Qu, and headquartered in Canada.
Although the company is headquartered in Canada and named after Canada, the majority of its 17 manufacturing facilities are based in China, coincidentally the world’s largest solar PV market. It’s claimed that the company is relatively unknown in Canada, and as a result of its huge Chinese presence, the company is planning on selling minority stakes to Chinese investors by listing on either Shanghai’s STAR market or Shenzhen’s ChiNext market.
The company’s business is segmented into two parts: Module and System Solutions (MSS) and the Energy segment.
The MSS segment is the largest segment (in terms of revenue generation) and has the lowest margin, it focuses on the design, manufacture, and sale of its range of solar modules and other solar power products.
While the Energy segment is the smallest segment and the most promising as it generates higher margins, it involves the development and sale of solar power projects. Sometimes before sales, the company operates the solar power plants and sales electricity generated from the plants.
Canadian Solar recently completed the sale of two operational solar power projects in Japan. The two plants collectively generate 61 megawatts-peak (53 MWp and 8 MWp from the Oita Hiji-machi and Miyagi Ogawara solar projects respectively).
CSIQ is currently down by 25% YTD, majorly as a result of rising Treasury yield, which will no doubt affect the margins of a company like Canadian Solar that relies on debt to finance its projects, it currently has a total debt of USD 2.2 billion, however, it has total cash of USD 981.23 million bringing its total debt/equity ratio of 117.50.
It’s has a $2.36 billion market cap, a forward low P/E ratio of 11, and a price/book ratio of 1.5, and trades at 0.65 sales, all of which makes it one of the cheapest solar energy stocks.
Henry John is a Stock Portfolio Manager that focuses on companies developing cutting-edge technologies.
Keeping track of cutting-edge techs, companies and stocks is what I do almost everyday. And I love it. Whether it’s artificial intelligence, 5g, or autonomous vehicles; I’m all in.
I’m a self-made millionaire who made most of his money investing in technology companies while working in finance.
Yes! I owe it all to tech and finance.