As far as many investors are concerned, companies that manufacture the components used in wind- and solar-power installations are the best way to profit from the rising adoption of renewable energy—a dangerous misconception. In many instances, these names are an investor’s worst option.
Too many investors regard these firms as technology plays that develop proprietary products and cutting-edge innovations, a perception that helps to explain these stocks’ premium valuations. We prefer to focus on their erratic financial results.
In reality, these companies are manufacturing concerns that produce commodity products in a highly competitive global market.
The most successful outfits have stabilized their revenue streams by focusing on building generation capacity for utilities; these long-term contracts generate a highly visible stream of revenue. Other firms do a brisk business by selling ownership interests in solar-power projects to utilities and generation companies.
At the end of the day, all these companies compete against one another to secure orders for components and renewable-power systems. And their ongoing prosperity depends as much on the continuation of government subsidies for clean energy as it does on their ability to outhustle their rivals for business.
These companies’ earnings and the price histories of their stocks reinforce the cyclicality of their core business. Factors that have alternately spurred or squashed profits include rising and falling fossil-fuel prices, the US dollar’s ups and downs, speculation about the future of government energy policies and trade policies affecting Chinese manufacturers.
This volatility makes these stocks better trading vehicles for traders who understand the industry—not long-term positions for buy-and-hold investors.
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In October 2012, renowned energy expert Elliott Gue launched the Energy & Income Advisor, a twice-monthly investment advisory that's dedicated to unearthing the most profitable opportunities in the sector, from growth stocks to high-yielding utilities, royalty trusts and master limited partnerships.
Elliott and Roger on May. 28, 2020
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