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3 Alternative Energy Stocks to Watch Amid Rising Material Cost
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Per the U.S. Energy Information Energy (EIA), wind generation in the United States is projected to increase 30 billion kilowatt-hours (kWh) in 2024. This should bolster alternative energy stocks’ prospects. However, the rising price of wind turbines and the strained U.S.-China relationship might impact the growth rate of these stocks. Nevertheless, the boom in the electric vehicle market, which is expected to witness a CAGR of more than 15.5% during 2023-2032, has been a key growth catalyst for the alternative energy industry. The forerunners in the U.S. alternative energy industry are Constellation Energy Corporation (CEG - Free Report) , Bloom Energy (BE - Free Report) and Enovix Corporation (ENVX - Free Report) .
About the Industry
The Zacks Alternative Energy industry can be fundamentally segregated into two sets of companies. While one group is involved in the generation and distribution of alternative energy and electricity from sources like wind, natural gas, biofuel, hydro and geothermal, the other is engaged in the development, design and installation of renewable projects involving these alternative energy sources. The industry also includes a handful of stocks that offer fuel cell energy solutions, which have gained popularity as an affordable clean energy lately. Per a report by the American Clean Power Association, as of Jul 31, 2023, more than $270 billion in capital investment was announced for utility-scale clean energy projects and manufacturing facilities since federal incentives were signed into law.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy has been making noticeable progress in the United States. Per a report by EIA, wind turbines were the source of about 10.2% of total U.S. utility-scale electricity generation in 2022. Looking ahead, per EIA’s latest Short-Term Energy Outlook published in January 2024, wind generation in the United States is projected to increase 30 billion kWh in 2024. This reflects a solid growth opportunity for the U.S. wind market at present, which, in turn, should boost the overall expansion of the alternative energy industry.
Rising Costs & Other Headwinds: The steadily rising cost of renewable installations in recent times has been posing a significant challenge for the clean energy installers. In particular, the rising price of steel, which is used to make the giant wind turbine blades, has been pushing up the cost of wind installation lately.
Apart from steel, the most significant mineral requirements in the wind industry are copper, zinc, manganese, chromium, nickel, molybdenum and rare earths. The average price of these seven metals has risen 93% between January 2020 and March 2023 (as stated by an IMF report). Resultantly, the average per-megawatt cost of a wind turbine has increased 38% over the past two years, per a report by GlobalData.
Further, fallout in bilateral relationship with China can have a direct impact on the green energy industry. This is because China accounts for up to 90% of refining capacity for so-called rare earth elements used in electric motors, wind turbine generators and other green energy products, per the Energy Transitions Commission. So, any deterioration in the relationship with China might impact the green energy supply chain in the United States, thereby impacting the alternative energy industry.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more individuals are choosing to switch from gasoline-powered vehicles to EVs each year, thereby boosting the market for EVs. In the United States, favorable government policies and support in terms of subsidies and grants, tax rebates, and other non-financial benefits in the form of carpool lane access, along with declining battery prices, have been boosting the EV market. The U.S. EV market size is expected to register a CAGR of more than 15.5% between 2023 and 2032, as estimated by a Global Market Insights firm report. Such an impressive outlook bolsters the prospects of clean energy stocks, which offer the largest electric vehicle charging network in the United States.
Zacks Industry Rank Reflects Grim Outlook
The Zacks Alternative Energy industry is housed within the broader Zacks Oils-Energy sector. It carries a Zacks Industry Rank #203, which places it in the bottom 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s earnings estimate for the current fiscal year has moved down 8.7% to $1.47 per share since Oct 31.
Before we present a few alternative energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Alternative Energy Industry has underperformed the Zacks S&P 500 Composite and its sector over the past year. The stocks in this industry have collectively lost 17.9% in the past year compared with the Oils-Energy Sector’s 9.8% decline. The Zacks S&P 500 Composite has gained 21.3% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 8.74 compared with the S&P 500’s 14.10 and the sector’s 3.52.
Over the past five years, the industry has traded as high as 9.28X, as low as 8.35X and at the median of 8.82X, as the charts show below.
EV-EBITDA Ratio (TTM)
3 Alternative Energy Stocks to Watch
Constellation Energy: Based in Baltimore, MD, the company is the nation's largest producer of carbon-free energy and provides sustainable solutions to homes, businesses and public-sector customers. On Dec 6, 2023, Constellation Energy revealed that it has joined a global list of 120 nuclear industry companies and organizations in 25 countries. As a part of this consortium, CEG pledges to support at least tripling the amount of zero-carbon nuclear energy globally by 2050 as part of an urgent strategy to address the climate crisis. This should elevate CEG’s position in the alternative energy industry.
CEG boasts a long-term earnings growth rate of 26.3%. The consensus estimate for the company’s fourth-quarter 2023 sales is pegged at $7.76 billion, implying an improvement of 5.9% from the year-ago quarter’s reported figure. CEG currently sports a Zacks Rank #1 (Strong Buy).
Price & Consensus: CEG
Enovix: Based in Fremont, CA, Enovix is an advanced silicon battery manufacturing company. On Jan 8, 2024, the company announced that it has joined forces with Group14 Technologies, a leading manufacturer and supplier of active silicon battery material, to develop a silicon battery using Group14’s silicon-carbon composite SCC55 for 100% of the anode material within Enovix’s battery architecture. Enovix and Group14 will additionally explore new ways to advance the performance and efficiency of lithium-ion silicon batteries, in line with their commitment to innovation, renewable energy and customer satisfaction.
The company boasts a four-quarter average earnings surprise of 4.94%. The consensus estimate for the company’s fourth-quarter 2023 sales is pegged at $3.37 million, implying an improvement of 208.7% from the year-ago quarter’s reported figure. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: ENVX
Bloom Energy: Based in San Jose, CA, Bloom Energy generates and distributes renewable energy. On Dec 27, 2023, the company announced its collaboration with SK ecoplant for the sale of Bloom’s electrolyzer technology to deploy hydrogen as an energy source in a large-scale green hydrogen demonstration with the Korea Southern Power Co., Ltd and local government. The demonstration for South Korea, which will commence in late 2025, includes 1.8 megawatts (MW) of Bloom’s industry-leading Solid Oxide Electrolyzer (SOEC) technology to develop green hydrogen at scale for use as transport fuel on Jeju Island, South Korea.
The company has a long-term earnings growth rate of 25%. The consensus estimate for the company’s fourth-quarter 2023 sales is pegged at $479.4 million, implying an improvement of 3.6% from the year-ago quarter’s reported figure. BE currently carries a Zacks Rank #3 (Hold).
Price & Consensus: BE
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3 Alternative Energy Stocks to Watch Amid Rising Material Cost
Per the U.S. Energy Information Energy (EIA), wind generation in the United States is projected to increase 30 billion kilowatt-hours (kWh) in 2024. This should bolster alternative energy stocks’ prospects. However, the rising price of wind turbines and the strained U.S.-China relationship might impact the growth rate of these stocks. Nevertheless, the boom in the electric vehicle market, which is expected to witness a CAGR of more than 15.5% during 2023-2032, has been a key growth catalyst for the alternative energy industry. The forerunners in the U.S. alternative energy industry are Constellation Energy Corporation (CEG - Free Report) , Bloom Energy (BE - Free Report) and Enovix Corporation (ENVX - Free Report) .
About the Industry
The Zacks Alternative Energy industry can be fundamentally segregated into two sets of companies. While one group is involved in the generation and distribution of alternative energy and electricity from sources like wind, natural gas, biofuel, hydro and geothermal, the other is engaged in the development, design and installation of renewable projects involving these alternative energy sources. The industry also includes a handful of stocks that offer fuel cell energy solutions, which have gained popularity as an affordable clean energy lately. Per a report by the American Clean Power Association, as of Jul 31, 2023, more than $270 billion in capital investment was announced for utility-scale clean energy projects and manufacturing facilities since federal incentives were signed into law.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy has been making noticeable progress in the United States. Per a report by EIA, wind turbines were the source of about 10.2% of total U.S. utility-scale electricity generation in 2022. Looking ahead, per EIA’s latest Short-Term Energy Outlook published in January 2024, wind generation in the United States is projected to increase 30 billion kWh in 2024. This reflects a solid growth opportunity for the U.S. wind market at present, which, in turn, should boost the overall expansion of the alternative energy industry.
Rising Costs & Other Headwinds: The steadily rising cost of renewable installations in recent times has been posing a significant challenge for the clean energy installers. In particular, the rising price of steel, which is used to make the giant wind turbine blades, has been pushing up the cost of wind installation lately.
Apart from steel, the most significant mineral requirements in the wind industry are copper, zinc, manganese, chromium, nickel, molybdenum and rare earths. The average price of these seven metals has risen 93% between January 2020 and March 2023 (as stated by an IMF report). Resultantly, the average per-megawatt cost of a wind turbine has increased 38% over the past two years, per a report by GlobalData.
Further, fallout in bilateral relationship with China can have a direct impact on the green energy industry. This is because China accounts for up to 90% of refining capacity for so-called rare earth elements used in electric motors, wind turbine generators and other green energy products, per the Energy Transitions Commission. So, any deterioration in the relationship with China might impact the green energy supply chain in the United States, thereby impacting the alternative energy industry.
EV Market Boom to Boost Clean Energy: With enhanced environmental awareness, more individuals are choosing to switch from gasoline-powered vehicles to EVs each year, thereby boosting the market for EVs. In the United States, favorable government policies and support in terms of subsidies and grants, tax rebates, and other non-financial benefits in the form of carpool lane access, along with declining battery prices, have been boosting the EV market. The U.S. EV market size is expected to register a CAGR of more than 15.5% between 2023 and 2032, as estimated by a Global Market Insights firm report. Such an impressive outlook bolsters the prospects of clean energy stocks, which offer the largest electric vehicle charging network in the United States.
Zacks Industry Rank Reflects Grim Outlook
The Zacks Alternative Energy industry is housed within the broader Zacks Oils-Energy sector. It carries a Zacks Industry Rank #203, which places it in the bottom 18% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the bottom 50% of the Zacks-ranked industries is due to a negative earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have lost confidence in this group’s earnings growth potential over the past few months. The industry’s earnings estimate for the current fiscal year has moved down 8.7% to $1.47 per share since Oct 31.
Before we present a few alternative energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Lags S&P 500 & Sector
The Alternative Energy Industry has underperformed the Zacks S&P 500 Composite and its sector over the past year. The stocks in this industry have collectively lost 17.9% in the past year compared with the Oils-Energy Sector’s 9.8% decline. The Zacks S&P 500 Composite has gained 21.3% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 8.74 compared with the S&P 500’s 14.10 and the sector’s 3.52.
Over the past five years, the industry has traded as high as 9.28X, as low as 8.35X and at the median of 8.82X, as the charts show below.
EV-EBITDA Ratio (TTM)
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3 Alternative Energy Stocks to Watch
Constellation Energy: Based in Baltimore, MD, the company is the nation's largest producer of carbon-free energy and provides sustainable solutions to homes, businesses and public-sector customers. On Dec 6, 2023, Constellation Energy revealed that it has joined a global list of 120 nuclear industry companies and organizations in 25 countries. As a part of this consortium, CEG pledges to support at least tripling the amount of zero-carbon nuclear energy globally by 2050 as part of an urgent strategy to address the climate crisis. This should elevate CEG’s position in the alternative energy industry.
CEG boasts a long-term earnings growth rate of 26.3%. The consensus estimate for the company’s fourth-quarter 2023 sales is pegged at $7.76 billion, implying an improvement of 5.9% from the year-ago quarter’s reported figure. CEG currently sports a Zacks Rank #1 (Strong Buy).
Price & Consensus: CEG
Enovix: Based in Fremont, CA, Enovix is an advanced silicon battery manufacturing company. On Jan 8, 2024, the company announced that it has joined forces with Group14 Technologies, a leading manufacturer and supplier of active silicon battery material, to develop a silicon battery using Group14’s silicon-carbon composite SCC55 for 100% of the anode material within Enovix’s battery architecture. Enovix and Group14 will additionally explore new ways to advance the performance and efficiency of lithium-ion silicon batteries, in line with their commitment to innovation, renewable energy and customer satisfaction.
The company boasts a four-quarter average earnings surprise of 4.94%. The consensus estimate for the company’s fourth-quarter 2023 sales is pegged at $3.37 million, implying an improvement of 208.7% from the year-ago quarter’s reported figure. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: ENVX
Bloom Energy: Based in San Jose, CA, Bloom Energy generates and distributes renewable energy. On Dec 27, 2023, the company announced its collaboration with SK ecoplant for the sale of Bloom’s electrolyzer technology to deploy hydrogen as an energy source in a large-scale green hydrogen demonstration with the Korea Southern Power Co., Ltd and local government. The demonstration for South Korea, which will commence in late 2025, includes 1.8 megawatts (MW) of Bloom’s industry-leading Solid Oxide Electrolyzer (SOEC) technology to develop green hydrogen at scale for use as transport fuel on Jeju Island, South Korea.
The company has a long-term earnings growth rate of 25%. The consensus estimate for the company’s fourth-quarter 2023 sales is pegged at $479.4 million, implying an improvement of 3.6% from the year-ago quarter’s reported figure. BE currently carries a Zacks Rank #3 (Hold).
Price & Consensus: BE