Solar stocks shine amid renewable weakness

Solar energy is a big piece of the renewable energy equation and after plenty of stops and starts, the technology has come of age. A dozen or more companies now sport market capitalizations in the billions, which means established businesses in terms of size, scale, and financial resources. 

Even so, renewables have had a terrible run in the past year. The S&P/TSX Renewable Energy and Clean Technology Index was down 28% over the 12 months to March 29. But for investors who can handle the volatility, the outlook remains bright.

The updates below are outperforming the general green energy malaise.

Invesco Solar ETF (NYSE: TAN) Recent close $72.49. (All figures in US dollars.) 

Background: The Invesco Solar ETF is used as a proxy for the solar industry as it follows the MAC Global Solar Energy Index. It has 100% of its holdings in solar manufacturing and related equipment, including the technology to operate power plants, store energy, and build related equipment.

Performance: The fund was down 2.2% in the 12 months to Mar. 29, but up 2% year-to-date. 

Key metrics: This ETF was launched in April 2008 and has an MER of 0.69%. It is passively managed with $2.3 billion in assets.

Holdings: North America dominates the portfolio with almost half (47%) based in the US. The lone Canadian holding, Canadian Solar (discussed below), accounts for 3% of the fund. Another 30% of holdings are in Asia and 14% are in Europe.

The top holdings are Arizona-based First Solar Inc., (10%), which makes panels and builds solar power plants. Other large positions are California-based Enphase Energy Inc. (9%), which makes solar power management software, and Israel’s SolarEdge Technologies Inc. (9%), which makes solar power inverter and monitoring systems for battery storage. Canadian Solar is in the top 10.

Discussion: The ETF had a big run-up in 2020 on the election of US president Joe Biden, who promised to give a boost to renewables. The shares peaked at $121 in February 2021 and sold off thereafter.

Looking ahead, the ETF is broadly diversified, and its North American weighting offers some stability in a notoriously volatile sector. It also means a greater participation in higher margin solar products, including battery storage and inverters. The latter are the brains of these systems. Inverters convert the direct current (DC) power generated by solar panels to alternating current (AC) power that is usable in homes.

Distribution: The fund has not paid any distributions since December 2020.

Canadian Solar Inc. (NDQ: CSIQ) Recent close $37.87. (All figures in US dollars.)

Background: Canadian Solar is based in Guelph, Ontario with operations in 24 countries. It has evolved from a low-cost manufacturer of solar panels into one that designs and builds solar power plants for utilities and has expanded into battery storage systems.

The company has two business segments: Global Energy and CSI Solar. Global Energy develops and builds solar power plants, from acquiring land to agreements with utilities and construction. CSI Solar makes panels and related power management products.

The stock received approval two weeks ago for a secondary listing in China.

Performance: Canadian Solar was a top performer as renewables captured investor imagination in 2020. The shares retreated through 2022 but have rebounded strongly this year.

Recent developments: On Mar. 21, Canadian Solar reported a record 2022 and offered a positive outlook for the year. The shares jumped 16% on the news.

For the year, it saw a 42% increase in revenues to $7.47 billion. Net income attributable to shareholders was $240 million ($3.44 per diluted share), which was also a record.

Shipments of solar modules rose 45% and its shipments of utility-scale battery storage shipments systems doubled.

Dividend: Canadian Solar does not pay dividends or have a share buyback program, preferring to invest in its business.

This article appeared in the Internet Wealth Builder on Apr. 2, 2023.  For information on how to reprint this article please view this page.