5 Best Solar Stocks to Buy in August 2021

The performance of solar stocks this year hasn’t been the best this year as the rally that this segment of the energy market saw last year on the back of the pandemic appears to be taking a breather.

This latest weakness in the price of multiple individual stocks within this up-and-coming sector could be creating opportunities for late buyers to enter a long position on the most promising individual names at more attractive prices while there is also the possibility of taking a conservative approach by buying shares of one fund that offers direct but broadly diversified exposure to the sector.

In the following article, I’ll be sharing some of the names you may want to consider in case you would like to take a position in a sector that could be quite hot in the following years.

First Solar Inc. (FSLR)

The price of First Solar shares has gone up almost 15% since the company reported its earnings for the second quarter of 2021 upon beating the market’s revenue and earnings estimates for the period.

Revenues for the Arizona-based provider of solar energy solutions landed at $629 million for a 2% decline compared to the same period a year ago. Meanwhile, earnings more than doubled as the firm reported net income of $82.4 million during Q2 2021 compared to $36.9 million it had reported back in 2020.

Gross and EBITDA margins for the firm also improved significantly compared to the previous year while First Solar shared its guidance for the year with the firm seeing its sales landing at $3.1 billion and earnings per share at $4.60. Those numbers would result in a 14.3% jump compared to 2020 revenues while the upper bound of the earnings estimate exceeded the Street’s forecast of $4.2 for the year.

Currently trading at $95.9 per share, the firm could be conservatively valued at a forward P/E multiple of 21 considering the significant growth that its sales could experience once solar energy becomes a pillar of the renewables revolution.

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SolarEdge Technologies (SEDG)

SolarEdge shares leaped more than 16% following the release of the firm’s Q2 results as the company beat analysts’ estimates for both revenues and earnings for the quarter while guidance for the year also landed above the Street’s forecasts.

The stock has shed some of those post-earnings gains in the past few days and this could open up an opportunity for late buyers to step in following this upbeat quarterly report.

SolarEdge has emerged as a top growth pick in the renewables sector as sales of the Israeli manufacturer of solar inverters had been growing at a fast pace before the pandemic stroked, moving from $490 million back in 2016 to $1.43 billion by the end of 2019 at a 43% CAGR.

Moreover, gross margins for the firm have remained above 30% during this period while EBITDA margins have progressively improved. According to analysts, SolarEdge’s adjusted earnings per share should land at around $3.84 per share by the end of 2021 which results in a forward P/E ratio of 25.

This multiple is particularly attractive considering the significant growth that the firm could experience once the solar market becomes more mainstream. Moreover, the company has been trimming its long-term debt lately, currently holding around $450 million in long-term commitments on assets of $7.25 billion including $1.77 billion in cash.

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Generac Holdings (GNRC)

Generac stock has performed quite well this year, with the stock delivering an 80.6% gain to investors so far in 2021 on top of last year’s 126% gain. The company, which specializes in manufacturing power generation equipment, has been making solid moves to strengthen its product offering for the solar market through the acquisition of several companies in the space.

Last month, the firm acquired Chilicon Power, a California-based manufacturer of solar microinverters. Meanwhile, in March 2019, the firm purchased Neurio Technology, a company specialized in producing residential energy optimization solutions while in May 2019 Generac acquired Pika Energy, a company that also manufactures solar equipment.

These moves led to the launch of the PWRcell and PWRview clean energy technology, which is a battery storage system that reduces energy costs for households.

Even though these products are not yet generating sizable revenues for Generac, the firm seems to be embarked on a trip that could eventually lead them to become a powerhouse in this growing segment of the energy market.

Considering the size of the solar inverter market, estimated at $27 billion by 2026 and the company’s positive track record of producing top-quality power generation products, Generac could emerge as one of the strongest players in the space and the fact that the company is trading at only 36.3 times its forecasted earnings per share for the next twelve months make it a particularly attractive long-term pick.

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Sunworks Inc. (SUNW)

With a short float of 18%, Sunworks has become a popular target of the Reddit army and the stock has delivered gains of 56.5% so far this year on top of a 310% return it produced back in 2020.

Even though the stock is trading 72% below its 52-week high of February, back when the short-squeezing frenzy took place, Sunworks chart shows that the stock has been posting a series of higher lows lately.

There’s not much to say about this stock from a fundamental perspective. However, any stock that is on the radar of WSB traders should be kept on a watchlist as another wave of positive sentiment toward the issue could lead to a sizable uptick considering its currently elevated short float.

It is worth noting that Sunworks reported a strong quarter a few days ago on the back of the revenues produced by the acquisition of Solcius. Revenues for the firm landed at $32.1 million for a 230% jump compared to the same period a year ago.

With sales forecasted to end the year at $125 million, the firm is trading at less than 2 times its estimated sales for the year. Meanwhile, by the end of the second quarter, the firm reported no long-term debt and assets of $110.8 million including $48 million in intangibles.

Based on this depressed valuation, if the firm’s growth accelerates moving forward and the retail army takes the wheel at some point down the line, chances are that the stock could experience a sizable uptick.

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Invesco Solar ETF (TAM)

For those who prefer to take a more conservative approach when it comes to getting exposure to solar stocks, Invesco’s Solar ETF (TAN) could be a suitable vehicle to achieve that goal.

Currently, the fund invests in 49 different stocks within this sector while its top ten holdings account for 57% of its total assets. Top names including Enphase Energy (11.5%), SolarEdge (11%) and First Solar (7%).

The fund currently oversees $3.37 billion for investors and charges a 0.69% annual expense ratio.

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