As the world continues its widespread shift from fossil fuels to renewable energy sources, there will be plenty of winners to come out of this long-term trend. Companies that produce clean energy products and services are certainly intriguing, as investors can not only use their capital to help to make the world a better place but also benefit financially from the growth in the industry. Solar stocks, in particular, are an exciting area of the market for investors that are willing to put up with some volatility over the long term. These stocks were burning bright last year, but have gone through a recent selloff that was likely driven by stretched valuations and rising input costs for materials such as steel and semiconductors.
The pullback in solar stocks could be viewed as a strong buying opportunity, especially if you are a believer in the long-term potential of this renewable energy source. Some of these stocks have already started to bounce back and are deserving of your attention at this time. Let’s take a look at 3 solar stocks that are starting to shine brighter.
1. Enphase Energy
First up is Enphase Energy (NASDAQ:ENPH), a company that designs, develops, manufactures, and sells home energy solutions. Enphase stands out as a potential winner in the solar industry thanks to its microinverter technology, which makes solar power systems more reliable and efficient. With more and more businesses and residential homeowners looking to convert their power systems to solar panels, Enphase has a prime opportunity to grow in the coming years. The company’s sales took a hit during the onset of the pandemic, but have started to rebound nicely in 2021, which is a good sign that there is still plenty of demand for affordable and environmentally-friendly energy sources.
The company recently reported stellar Q1 earnings, including revenue of $301.8 million, up 50% year-over-year, and a non-GAAP gross margin increasing to 41.1%. While margins might dip a little in the short-term thanks to the global semiconductor shortage, that shouldn’t stop the company from delivering a potentially record-breaking year. The bottom line here is that Enphase Energy is a market-leading solar stock that has reclaimed all of the major moving averages, which is why it's worth a look at this time.
2. Sunrun
If you are looking for another key player in the solar industry, Sunrun (NASDAQ:RUN) is a great option to consider. It’s a company that sells solar power energy systems to U.S. residential customers and is poised to benefit in a big way from President Joe Biden’s proposed plan to leverage $2 trillion in subsidies for renewable projects. Sunrun is also a strong pick in the sector as the company made a major acquisition of Vivint Solar (NYSE:VSLR) back in 2020 that should pay off nicely over the long term. The deal resulted in creating a #1 market share in U.S. solar, and the resulting synergies should be resoundingly positive for the company after some initial capital costs.
Sunrun is also interesting given its unique way of helping its customers finance its solar energy systems. Customers are able to switch to solar power with Sunrun in a cost-friendly manner thanks to the company’s low initial leasing costs that slowly rise over time. The stock has been battered and bruised this year but looks to have found a bottom, as it has rallied over 13% during the last month. If the stock can reclaim its 200-day moving average, long-term investors interested in exposure to the residential solar market should certainly take a look.
3. Invesco Solar ETF
Solar stocks historically have been quite volatile, which makes it difficult for retail investors to successfully choose individual names in the sector. That’s why the Invesco Solar ETF (NYSE:TAN) stands out as a good buy, as it provides diversified exposure to the solar industry to help long-term investors manage their risk. This ETF rallied over 233% during 2020, so it makes sense that a pullback was on the cards for the sector. However, we are seeing some encouraging signs that the solar sector has possibly found a bottom, which is why the Invesco Solar ETF should be on your radar.
With the Invesco Solar ETF, investors can gain exposure to some of the top companies in the sector including Enphase Energy, SolarEdge Technologies (NASDAQ:SEDG), Sunrun, First Solar (NASDAQ:FSLR), and more. What’s also interesting about this ETF is that it offers international exposure through holdings in China, Spain, Taiwan, Germany, Canada, and more. This is attractive as we know that the shift towards renewable energy is occurring all over the world. The Invesco Solar ETF recently reclaimed the 50-day moving average and has started acting better than it has throughout 2021, which might be a sign that investors are warming up to solar names again.