Top stock picks from the solar industry

The solar industry has experienced an average annual growth rate of 49% since the year 2018.

Strong federal policies like the solar investment tax credit have lifted the demand in the public as well as private sector for solar energy.

A 70% reduction in installation charges has acted as a major fillip to the US solar industry, which is currently valued at around $10 billion. The industry has also become a major job supplier, generating around 242,000 job by the end of 2020.

The market is expected to see continued growth at a CAGR of 17.32% during 2020-2025 period, as solar electricity is now economically competitive with conventional energy sources in several states.

Here are a few power stocks that you can possibly add to your portfolio.

SunPower

SunPower (NASDAQ: SPWR), an industry leader in residential solar, and has built an asset-light business model with both residential solar and energy storage. Sun Power had witnessed a decline in revenue in the fourth quarter by 14.9% due to a spin-off in its manufacturing business Maxeon Solar Technologies in 2020.

Despite poor Q4 performance, the San Jose-based solar giant targets an 18% margin on residential solar systems and 24% on commercial and industrial panels. SunPower currently has a market cap of $6.2 billion, and by 2022 EBITDA is expected to be over $168.4 million. This puts the market cap-to-EBITDA multiple at approximately 37 times.

Sun Power is getting into the energy storage business and the management thinks the combination of solar storage platform services, and long-term energy services may contribute about $600 billion to the total addressable market.

First Solar

First Solar (NASDAQ: FSLR) designs and manufactures solar power systems and solar modules. First Solar reported net income growth of 406.3% and net sales growth of 69.6% in Q3 2020. The growth in international project sales boosted EPS growth by 403% year on year.

In October last year, Vistra Corp selected First Solar’s PV solar modules to power its six solar energy projects across Texas. The stock has rallied 101% since the news broke out. The Arizona-based solar company launched a 6 PV module, which is the first PV product to be included in the launch of the EPEAT Photovoltaic and Inverters product category. This module is also used by some companies across Europe.

First Solar is one of the top-rated stocks in the solar segment due to short-and-long-term bullishness, growing demand, and strong financials.

Canadian Solar

Canadian Solar (NASDAQ: CSIQ), a leading manufacturer of solar photovoltaic modules reported impressive results for the third quarter with top-line climbing 20.3% year-over-year to $914.4 million.

The company’s net revenue has grown at a CAGR of 4.4% over the past three years, and its EBITDA increased at a CAGR of 40.5% over the same period.

The company has planned for an IPO in China to expand its capacity and increase its vertical integration, which would enhance the company’s pricing power and increase global market share.

The Canada-based solar energy solutions provider plans to enter the energy storage segment, which would be benefit the energy delivery business. This way of diversifying would help company achieve better margins.

Canadian Solar is trading at a much cheaper valuation compared to its peers. With a forward PE ratio of around 13 times, the valuation of the company seems very attractive.