Over the past few years, climate change has become one of the biggest global trends. Governments around the globe are now taking action by rolling out extensive plans to shift towards complete renewable energy grids. Of all types of renewable energy, solar has emerged as the clear leader due to rapidly dropping prices, ease of installation/maintenance, and its ability to be harnessed in a decentralized manner.
Best Canadian Solar Stocks
Here are the best stocks for investors for a Solar energy plays;
1. First Solar (NASDAQ: FSLR)
First Solar is the largest manufacturer of solar equipment in the United States. First Solar operates 3 solar panel fabrication plants around the world with a total annual production capacity of 6.7 GW. The company shipped 5.5 GW in 2020. First Solar has a market cap of $8.54 billion and a P/E of just 16.6.
First Solar operates on a B2B business model, meaning it is focused on utility-scale and commercial installation. A focus on commercial and utility-scale clients allows the company to offer end-to-end solutions that include equipment and its installation, maintenance, and financing of the projects, thus generating higher margins than those present in the ultra-competitive panel market. First Solar enjoys a technological competitive advantage over peers due to its proprietary Cadmium-Telluride semiconducting film technology which is a market leader in efficiency. The company has projected 2021 financial guidance of $3 billion in revenues (up 10% on 2020), EPS of $4.05-$4.75(up 10%-27% on 2020) and shipments of 7.8-8 GW (up 41%-45% on 2020).
2. Canadian Solar (NASDAQ: CSIQ)
Canadian Solar is a Guelph, Canada headquartered solar panel manufacturer. Canadian Solar is a completely vertically integrated company and operates 17 production facilities across the globe. Canadian Solar has 14 GW of module capacity, 5 GW of silicon wafer capacity, and 10 GW of solar cell capacity. The company shipped 11.3 GW of solar equipment in 2020.
Along with solar equipment manufacturing, Canadian Solar is also involved in battery-based energy storage products with a 9GWh projects pipeline. industrial and government projects make up most of the company’s revenue. Canadian Solar is an extremely efficient company with near zero-bad debt on credit sales, low inventory periods, and a negative cash conversion period. The company also enjoys a competitive advantage as it operates one of the largest direct sales channels in the solar sector, leading to higher margins.
The company has projected 2021 guidance of $5.6-$6 billion (up 60%-71.4%) in 2020 with total shipments of 18MW-20MW (up 59%-76.9% on 2020) and battery shipment guidance of 810MWh-860MWh. Assuming FY20 margins, profits should be in the range of $235-$250 million for FY21 (up 59%-71%).
3. Brookfield Renewable Partners (TSE: BEP.UN)
Brookfield Renewable Partners is promoted by global private equity major Brookfield Partners. The firm operates a global portfolio of renewable energy assets spanning all major types such as hydro, wind, solar, and renewable energy storage facilities. Brookfield Renewable Partners has $59 billion of power assets under management and nearly 6000 power facilities. The group has a total development pipeline of over 23GWh.
The group is mainly focused on building power assets at strategic locations at economically favorable times. Over time the group recycles assets by selling mature assets and using proceeds from the sale and new issues to expand their portfolio. Compared to others on this list, Brookfield Renewable offers investors a very diverse asset base in terms of geography and type of energy generation.
In 2020, the group generated 42GWh of renewable energy across all assets. In Q1 2021, the company reported a 190% increase in FFO (Funds from Operations), with FFO from solar assets increased 275% after it acquired Terraform Power, a major US solar manufacturer, for vertical integration.
4. SolarEdge Technologies (NASDAQ: SEDG)
SolarEdge is an Israel-based but US-domiciled producer of ancillary solar products. Their products include solar inverters, power optimizers, and power generation monitoring systems. SolarEdge has manufacturing facilities in Hungary and China. The company has a market cap of $12.7 billion and a P/E of 102.
SolarEdge operates in a highly competitive market with competitors such as Enphase Energy, who have been chipping away at its market share in the US. However, SolarEdge derives little more than 2/3 of its revenue from international markets, particularly Europe, where the company has achieved significant growth and the political stance on renewable energy is very strong in the EU.
In Q1 2021, the company outperformed projections with revenues of $405 million (up 6% on 2020), while the solar segment was up 15% in 2020. For Q2, the company expects revenues of $445-$465 million (up 9.8%-14% on Q1) with solar revenue growth of between 7.7%-11.7%. The company has been growing very well in APAC regions such as Australia where they recorded sequential quarter growth of 50%. The company expects sequential quarterly growth over the rest of the year of 35%. The company is entering the residential battery business this quarter and expects meaningful revenues from Q3. Management expects that the battery business will add between $100-$150 million in FY21 with a more meaningful contribution from next year onwards.
Small Cap Solar Penny Stocks in Canada
Here are some small-cap Solar penny stocks that are high risk but potentially high rewards opportunities for investors –
1. UGE Inc (CVE: UGE)
UGE is a New York-based end-to-end solar solutions provider. UGE has developed over 700 MW of projects over the past decade. The company has recently changed its business model from develop and flip to develop and hold. The company has two main lines of business, the first being development of solar projects for ownership by UGE and the second being fee income for turn-key solar solutions for customers. The company has a resilient business model as revenues from solar projects are very predictable, thus allowing the company to borrow against revenues from existing projects to fund expansions without taking too much risk or expensive debt. Furthermore, the company has a very asset-light business model.
In the first quarter of the year, the company reported revenue growth of 59% and a gross margin of 23%. UGE currently has an order backlog of $130 million and has plans to scale power assets and annual project development capacity to 100MW by 2024. According to the company, each MW provides between $0.5 million-$1 million in net asset value and $200,000 in annual recurring revenue. Thus, the projected 2024 asset value is $100 million and annual solar revenue is $20 million compared to current solar assets of $1.2 million and solar revenues of just $26000. Therefore, the company can be a multi-bagger if the company is successful in executing its plan.
2. Aurora Solar Technologies (CVE: ACU)
Aurora Solar Technologies is a producer of industrial equipment that is used in large-scale manufacturing of solar panels called in-line quality control systems. As solar cell manufacturing is a complex process, the company’s products help manufacturers detect variations and faults in the assembly line. To do this, the company’s infrared spectroscopy sensors that are linked to proprietary software are fitted along the assembly line, thus allowing real-time quality control.
Aurora has a very unique revenue model; it charges customers between 5%-10% of the cost savings delivered by their product. The company has been severely hit during the pandemic and posted a $1.3 million loss in FY20. The company claims savings of $10 million for each customer per year, translating to $0.5 million-$1 million revenue per customer for Aurora. The company recently got its first customers and their claims of revenues will be tested over the next few quarters. Investors should keep an eye on this one.
3. Clear Blue Technologies International
Clear Blue Technologies is a manufacturer of turn-key off-grid wireless power solutions. The company’s products, known as mission-critical devices, are vault-shaped devices with a deployable solar array on top and a battery inside. Their products are commonly used in obscure areas where no power infrastructure exists, such as forests, mining sites, deserts. The use-case is typically for powering 5G towers, satellite internet ground stations, obscure surveillance equipment, etc. Their products come with their own device management software that allows owners/users to configure and operate the device from anywhere in the world.
The company recently announced deals in the US to power street lights on obscure roads and a slew of trial orders from telecom operators in African countries like Uganda and Nigeria.
Clear Blue was profitable in 2020 despite the pandemic and grew their revenues by 45% YoY in Q1 2021 and their Trailing Twelve Month revenues are up 87%. The company has a high gross margin of 31.5%. We believe this is a great microcap bet for investors as Clear Blue doesn’t have to compete on price due to a differentiated offering and has great headroom to grow.
4. Solar Alliance Energy (SOLR.V)
Solar Alliance provides solar systems and infrastructure to residential and commercial clients in a variety of states.
Why You Should Invest in Solar Stocks in Canada
The rate at which solar panels are becoming cheaper has far outperformed analyst expectations made in the early 2000s when solar had just started gaining steam. Over the past decade, solar panel costs have gone down 90% while production has grown at a CAGR of 25%. The annual global solar market is projected to surpass $200 billion over the next 5 years which is why we believe solar stocks deserve a place in every investor’s portfolio.