Key Points
- Solar stocks have been beaten up by slowing growth and high interest rates, but the market is overextended.
- Analysts continue to Hold and Buy solar stocks and see many of the stocks gaining double to triple digits.
- High short interest may weigh on these markets in the near term but provide fuel for rallies and short-squeezes.
- 5 stocks we like better than Sunnova Energy International
Once again, a brief look at the MarketBeat list of Most Downgraded Stocks proves that opportunity is where you find it. While solar stocks have seen their share prices plummet over the past few quarters, driven by analysts' revisions and short selling, the markets appear to be overextending and oversold, providing an opportunity for investors. The takeaway from the data is that many of these highly downgraded, highly shorted names are growing, producing profits and trading at low valuations while retaining analyst support. The rebound in their stock prices may take a while, but the stage is set for a vigorous and substantial rebound when they do.
Inverters are where the Money is in the Solar Market
Digging into names like SunPower Co. NASDAQ: SPWR, SolarEdge NASDAQ: SEDG, Sunnova Energy International NYSE: NOVA, and Enphase Energy NASDAQ: ENPH will show you that the solar industry is growing at a solid double-digit pace, and profits are here. The takeaway is the companies linking solar to the grid are doing better than those supplying solar technology to residential and business uses. SolarEdge is the largest of the 2 prominent inverter companies and trades with a market cap of $7 billion. It provides inverter and other technologies that transform solar DC into more usable AC.
SolarEdge is the 2nd Most Downgraded solar stock but is still rated a Moderate Buy by analysts. The moderate buy rating is firm and steady over the past year but comes with a receding price target. The consensus is down about 14% YOY and may edge lower, but there are 2 telling indications the bottom may be near for this stock. The first is that the consensus estimate is still forecasting a 145% upside for the market, and the low price target, which is the freshest, still assumes a 20% upside for this stock. The forecast for next year includes 20% revenue growth and that strength to carry through to the bottom line.
Enphase: Double-Digit Growth and Margin Expansion
Enphase is the fourth Most Downgraded Solar Stock but still rated a Moderate Buy with significant upside potential. This stock is above the analysts' low price target but still 75% below the consensus. The consensus is down compared to last year, but the rate of change is slowing now that the market has priced in the latest guidance. The catalyst for this stock is its international expansion; international is outperforming domestic, and moves from countries like France to bolster solar use will underpin the growth. Looking forward, Enphase is expected to sustain high-double-digit growth in 2024 and to widen its margin.
SunPower Harnesses the Sun for Residential Use
SunPower provides technology and services for residential solar power. The stock is short 35% despite ramping revenue and its ability to produce profits. Profitability has been sketchy quarter-to-quarter but is expected to hold steady in 2024. The forecast is for revenue to hold relatively steady compared to 2023 but for the margin to improve substantially. Analysts rate the stock a Hold, but about two dozen of them are covering the stock, which is true for the group. The consensus price target of $12.75 implies about 118% upside but may come down in the next few months. The salient point is that, like SolarEdge, even the low price target assumes an upside for this market.
Sunnova Energy International Comes with the Most Risk
Sunnova Energy International is another solar technology and services provider on a growth trajectory. The problem is that there are no profits and profitability is not in the forecast for next year. That aside, the analysts continue to rate the stock a Moderate Buy and see it moving up at least 10%, which is at the low end of the range. The consensus mid-point assumes about 180% of upside, and most new targets are in the range of +100%. The next visible catalyst for Sunnova is the Q3 earnings release at the end of October.
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