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20 stocks for maximum growth as the world switches to clean energy

MarketWatch logo MarketWatch 8/14/2021 Philip van Doorn
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DEEP DIVE

If you would like your investments to help protect the Earth, you might as well go in for the long term and try to make a lot of money as companies specializing in low-emissions and sustainable energy technologies grow.


Video: Key levels to watch in energy stocks as U.S. urges more oil output (CNBC)

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Below is a screen of alternative-energy companies expected to produce the fastest revenue growth over the next three years.

The United Nations Intergovernmental Panel on Climate Change released its new report on climate change Aug. 9 and said that the past decade had been the warmest over the past 125,000 years. Here are five quick takeaways from the U.N. IPCC’s report. You can read the IPICC’s summaries and download the entire report here.

Climate change is a controversial subject, but regardless of your opinion about governments’ responsibility, as an investor you need to move toward lower emissions, more sustainable power sources, smart electric grids, among other things. Changing your portfolio with the times gives you an opportunity to profit as innovative companies grow quickly.

A diversified investment in one or more exchange traded funds focused on clean energy is one way to do this — it also sets the basis for the stock screen that follows.

Here are the largest five alternative energy ETFs listed by ETF Database.

To begin the screen, we looked at the five largest cloud ETFs:

ETF Assets ($mil) Expense ratio Holdings Strategy
iShares Global Clean Energy ETF $6,117 0.42% 83 Tracks a market cap-weighted index of global clean energy companies, with weighting modified by a an exposure score.
Invesco Solar ETF $3,480 0.69% 56 Tracks an index of global solar energy companies, “this cutting out much of the broader renewable energy market,” according to FactSet. The portfolio is weighted to emphasis pure-play solar companies.
First Trust Nasdaq Clean Edge Green Energy Index Fund $2,693 0.60% 53 Tracks a market-cap-weighted index of U.S. clean energy companies.
ALPS Clean Energy ETF $953 0.55% 40 Tracks an index of clean energy companies listed in the U.S. and Canada. Portfolio is weighted by market capitalization, subject to a 5% maximum.
First Trust Nasdaq Clean Edge Smart GRID Infrastructure Index ETF $449 0.70% 70 Tracks a market-cap-weighted index of global companies in the smart grid and electric infrastructure industries.
Source: FactSet

These ETFs have varying strategies, and definitions of alternative or clean energy companies may be broad. For example, electric-vehicle maker Tesla Inc. also makes solar-power-generation equipment and is held by QCLN, ACES and GRID. Rival EV makers Nio Inc. and Xpeng Inc. are held by QCLN.

If you are interested in any ETF, you should review the fund manager’s website.

ETF Database says solar energy is the most common industry among companies held by ETFs in the alternative energy category, but that “wind, hydroelectric and geothermal energies are also represented.”

Here’s a comparison of total returns for the five ETFs through Aug. 6:

 
ETF, index or sector Total return – 2021 Total return – 2020 Total return – 3 years Total return – 5 years Total return – 10 years
iShares Global Clean Energy ETF -18% 142% 166% 175% 128%
Invesco Solar ETF  -16% 234% 289% 324% 103%
First Trust Nasdaq Clean Edge Green Energy Index Fund  -5% 184% 238% 351% 502%
ALPS Clean Energy ETF   -12% 140% 184% N/A N/A
First Trust Nasdaq Clean Edge Smart GRID Infrastructure Index  21% 49% 100% 178% 292%
S&P 500 Index   19% 18% 64% 124% 353%
S&P 500 Energy Sector  34% -34% -23% -10% 1%
Source: FactSet

Performance among these alternative energy ETFs is mixed, but for the three- and five-year periods, all handily beat the returns of the S&P 500 Index

Clean-energy stock screen

The five ETFs listed above hold a total of 204 stocks. To project the growth of revenue through 2023, we used calendar 2020 estimates among analysts polled by FactSet as a baseline and then looked at consensus estimates for the subsequent three years, if available. (The 2020 numbers are estimates, because many companies’ fiscal years don’t match the calendar.)

We emphasized revenue because many of these companies are at early stages and are focused on developing products and services and growing their businesses, rather than showing net income.

To ensure a quality set of estimates, we limited the group of companies to those covered by at least five analysts polled by FactSet. For a slight cut to risk, we also eliminated any company with less than $10 million in estimated revenue during calendar 2020. The available set of data brought the list down to 135 companies.

Here are the 20 companies projected to have the highest compound annual growth rates (CAGR) for revenue through calendar 2023:

Company Country Estimated revenue – 2020 Estimated revenue – 2021 Estimated revenue – 2022 Estimated revenue – 2023 Projected three-year revenue CAGR Held by
XPeng Inc. ADR Class A China $896 $2,488 $4,437 $6,810 96.6% QCLN
Meyer Burger Technology A.G. Switzerland $101 $111 $296 $521 73.0% ICLN, TAN
Nio Inc. ADR Class A China $2,517 $5,457 $9,072 $12,902 72.4% QCLN
Solaria Energia y Medio Ambiente S.A. Spain $70 $123 $222 $293 61.1% ICLN, TAN
Greenlane Renewables Inc. Canada $18 $37 $50 $66 53.4% ACES
McPhy Energy S.A. France $17 $17 $28 $59 53.2% ICLN
Xebec Adsorption Inc. Canada $45 $94 $134 $156 51.6% ACES
Nel ASA Norway $77 $104 $161 $253 48.7% ICLN
Renova Inc. Japan $188 $257 $304 $591 46.5% ICLN, TAN
Niu Technologies ADR Class A China $375 $625 $906 $1,155 45.6% QCLN
Shoals Technologies Group Inc. Class A U.S. $175 $237 $356 $525 44.1% ICLN, TAN, ACES
FuelCell Energy Inc. U.S. $71 $81 $133 $210 43.5% ICLN, QCLN
Sunnova Energy International Inc. U.S. $161 $237 $343 $465 42.4% ICLN, TAN, QCLN, ACES
Enphase Energy Inc. U.S. $774 $1,336 $1,796 $2,232 42.3% ICLN, TAN, QCLN, ACES, GRID
Flat Glass Group Co. Ltd. Class H China $951 $1,424 $2,077 $2,730 42.1% ICLN, TAN
Aemetis Inc. U.S. $166 $223 $301 $470 41.5% ACES
Doosan Fuel Cell Co. Ltd. South Korea $412 $424 $774 $1,145 40.6% ICLN
Grenergy Renovables S.A Spain $122 $174 $258 $331 39.3% TAN
Tesla Inc. U.S. $31,536 $50,043 $67,624 $82,515 37.8% QCLN, ACES, GRID
Daqo New Energy Corp. ADR China $676 $1,468 $1,574 $1,528 31.2% ICLN, TAN, QCLN
Source: FactSet

Click on the tickers for more about each company.

The following table includes price-to-earnings ratios based on current market capitalizations and consensus net income estimates for calendar 2022 (if they are more than zero) and price-to-sales ratios based on market caps and consensus revenue estimates for calendar 2022.

All numbers feeding the P/E and price-to-sales ratios are in U.S. dollars.

The table also includes summaries of analysts’ opinions about the stocks, with share prices and price targets in local currencies where the stocks are listed.

Company Price/ consensus 2022 earnings (if applicable) Price/ consensus 2022 revenue Share “buy” ratings Closing price – Aug. 6 Consensus price target  Implied 12-month upside potential
XPeng Inc. ADR Class A N/A 6.0 88% 41.22 48.89 19%
Meyer Burger Technology A.G. N/A 4.4 71% 0.44 0.60 36%
Nio Inc. ADR Class A N/A 6.6 80% 43.84 59.10 35%
Solaria Energia y Medio Ambiente S.A. 31.2 10.5 60% 15.90 21.08 33%
Greenlane Renewables Inc. 75.7 3.6 100% 1.57 2.91 85%
McPhy Energy S.A. N/A 18.8 67% 16.21 26.57 64%
Xebec Adsorption Inc. 180.7 3.4 60% 3.77 5.36 42%
Nel ASA N/A 15.2 56% 14.94 24.53 64%
Renova Inc. 90.9 10.7 0% 4,595.00 3,678.00 -20%
Niu Technologies ADR Class A 21.5 1.7 83% 23.55 38.61 64%
Shoals Technologies Group Inc. Class A 42.0 9.4 75% 32.72 40.92 25%
FuelCell Energy Inc. N/A 15.3 0% 6.33 8.13 28%
Sunnova Energy International Inc. N/A 11.7 88% 35.99 54.00 50%
Enphase Energy Inc. 99.1 13.5 64% 179.74 200.55 12%
Flat Glass Group Co. Ltd. Class H 6.1 1.1 81% 41.00 33.60 -18%
Aemetis Inc. N/A 1.0 100% 9.27 30.50 229%
Doosan Fuel Cell Co. Ltd. 58.8 3.7 100% 49,950.00 67,230.86 35%
Grenergy Renovables S.A 21.7 3.6 100% 27.95 46.55 67%
Tesla Inc. 82.5 10.2 44% 699.10 694.96 -1%
Daqo New Energy Corp. ADR 6.9 2.7 77% 58.15 108.65 87%
Source: FactSet
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