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Renewable energy has become a major topic for forward-looking investors and several different niches within the energy industry are looking to improve upon it. Water, wind power, and solar power are the biggest potential sources, all with their pros and cons. But solar power is at the center of the renewable energy market thanks to the companies that produce it and the many ways it can be harnessed by consumers.
Of course, saving the world takes time, and investors aren’t known for being patient. Today we’re going to look at 5 solar stocks that could make waves in 2020.
Overview: Solar Stocks
Solar energy is a clean and potentially limitless source of energy and many companies have attempted to harness it. Nor is solar energy a unique technology. The sun’s energy is transformed into electricity by 3 different methods:
- Solar Heating and Cooling (SHC)
- Concentrating Solar Power (CSP)
When talking about solar power, most people talk about solar photovoltaic systems, which convert sunlight into energy through the semiconductors that line the inside of solar panels. Concentrating solar power and solar heating and cooling systems actually use the thermal energy to create power. CSP and SHC systems are often implemented to heat public swimming pools or provide hot water to residences.
Despite the potential, problems remain when it comes to implementing solar power systems. The sun can reliably rise and set at specific times, but the weather is about as reliable as The X-Files’ Smoking Man. A long period of bad weather could wreak havoc on solar energy systems and storage systems are essential for any solar energy application. Daylight hours must count for solar systems to achieve maximum efficiency, and the weather often won’t cooperate.
Then there is the cost. For the average homeowner, installing a solar power system will cost around $14,000 to get up and running and that’s after taking into account the federal tax credit. While the long-term energy savings can make this a worthwhile investment, most homeowners just don’t have $14,000 in the budget to switch to a new source of electricity.
Best Online Brokers for Solar Stocks
Before investing in solar energy companies, you will need a broker to provide you with stocks. If you don’t have a broker, you’re in luck — there’s never been a better time to open an account. Almost all major brokerages have eliminated commissions on stock and ETF trades, and many offer sign-up bonuses like deposit matching or free shares.
Your level of experience will determine which broker is the best. If you want to trade based on technical analysis and buy/sell signals, you won’t want a broker that only offers basic line charts. And of course, make sure your broker holds shares of the solar companies you want to invest in.
Features To Look For In Solar Stocks
Solar energy stocks haven’t been terrific investments over the past few years. Despite advances in efficiency and advocacy by governments around the world, most solar stocks languished behind the S&P 500 during the decade of the bull market. There is no doubt that solar power will be a big part of our lives for years to come, but how long will investors be willing to wait to see more widespread adoption?
When researching solar companies to invest in, always keep a few key characteristics in mind.
- Debt levels: Solar energy is expensive. Panels are expensive to manufacture, installations are expensive to build, and storage systems are expensive to maintain. These costs will likely decrease in the future as the technology continues to improve, but right now, solar energy companies need significant capital. Make sure you don’t invest in a company with an unhealthy level of debt – just watch Solyndra.
- Cash flow consistency: Additionally, solar energy companies need a ton of capital to keep their operations running smoothly. Much like its peers in the oil and gas industry, the equipment required to manufacture, install and maintain solar systems is expensive. Even the solar panels themselves are not cheap! To make sure you’re investing in the best solar stocks, keep an eye on their cash flow. Cash flow and debt often go hand in hand here.
- Management who believes: If you’re in it for the money, you’re in the wrong business. Solar energy companies have an uphill battle with a familiar enemy: inertia. Fossil fuels remain the main source of global energy and replacing them would require massive infrastructure changes. The management team of a solar energy company must have the longest view in the room because adoption will be a slow and arduous process. This is not the industry to cut corners just to make money.
What is the place of solar stocks in your portfolio?
Solar energy companies try to serve 2 masters at once. On the one hand, solar energy is a tremendous public good that would significantly reduce the consumption of fossil fuels and contribute to a healthier environment. On the other hand, solar energy systems are expensive to build and maintain and companies in the sector are often saddled with debt.
When adding solar stocks to your portfolio, be sure to consider the pros and cons of individual companies and the industry as a whole. Just because a company is trying to do good doesn’t mean it’s well run. Always check solar companies carefully before investing and have a plan to exit a speculative trade.