Top Alternative Energy Stocks

Daqo New Energy Corp., Archaea Energy Inc., and Vision Energy Corp. are the top-performing alternative energy stocks for value, growth, and momentum respectively.

Solar energy company Daqo's falling stock has turned it into a major value due to its outperforming earnings and return on equity. Archaea's revenue rose almost 800% in the latest quarter due to growth in its renewable natural gas (RNG) infrastructure contracts. And Vision Energy's stock has almost quadrupled in the past year as the company expands its hydrogen distribution and production business.

These stocks are outperforming their categories as the benchmark iShares Global Clean Energy ETF (ICLN) has fallen by 9% in the last year, less than the 16% drop of the Russell 1000 Index. All data are as of Dec. 7, 2022.

Here are the top alternative energy stocks in three categories: best value, fastest growth, and the most momentum.

Best Value Alternative Energy Stocks

These are the alternative energy stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profit can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

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• Daqo New Energy Corp.: Daqo is a Chinese solar energy company that manufactures polysilicon for sale to manufacturers of solar cells and modules. It also makes photovoltaic wafers. Daqo recently announced a $700 million share repurchase program effective from Nov. 7 through Dec. 31.
• Clearway Energy Inc.: Clearway invests in and owns energy infrastructure and long-term contracted renewable energy assets. It invests in solar and wind power in the U.S.
• Brookfield Renewable Corp.: Brookfield operates hydroelectric, wind, solar, and storage facilities in North and South America, Europe and Asia. For the third quarter, Brookfield reported that net losses narrowed as revenues increased 14% to $1.1 billion, aided by its hydro portfolio and contracts indexed to inflation.

Fastest Growing Alternative Energy Stocks

These are the top alternative energy stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly year-over-year (YOY) percentage revenue growth and their most recent quarterly YOY earnings-per-share (EPS) growth. Both sales and earnings are critical factors in the success of a company. Therefore, ranking companies by only one growth metric makes a ranking susceptible to the accounting anomalies of that quarter (such as changes in tax law or restructuring costs) that may make one or the other figure unrepresentative of the business in general.

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• Archaea Energy Inc.: Archaea develops, builds, and operates RNG facilities and infrastructure. In the most recent quarter, the company reported a net loss on rising revenue, driven by RNG production at its Assai operations and strong market pricing. Note that Archaea doesn't have an EPS growth figure in the table above because it had negative EPS for the period in question.
• Sunrun Inc.: Sunrun develops, installs, sells, and maintains residential solar energy systems throughout the U.S. Its clients include individual homeowners and commercial developers. Sunrun's net loss narrowed in the latest quarter as revenues climbed 44%, aided by gains in solar energy systems and products.
• Enphase Energy Inc.: Enphase is a global energy technology company that combines solar, batteries, and software together into one package. On Oct. 25, Enphase announced that net income for the last quarter more than quintupled while revenue increased 81%, aided by strong demand in Europe and North America.
  

Alternative Energy Stocks With the Most Momentum

These are the alternative energy stocks that had the highest total return over the past 12 months.

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• Vision Energy Corp.: Vision produces, stores, and distributes hydrogen for use in industrial, logistics, and vehicle transportation applications. It also provides low-carbon energy solutions for gas and power infrastructure projects.
• First Solar Inc.: First Solar designs and manufactures photovoltaic solar power systems and solar modules. The company recently announced plans to invest $1.1 billion to construct its fourth American manufacturing facility, located in Lawrence County, Alabama. First Solar's other three American factories are in Ohio.
• Enphase Energy Inc.: See company description above.

Advantages of Alternative Energy Stocks

Government Initiatives: Both federal and state governments have taken an active step toward investing in alternative energy. For example, as part of the $1.2 billion infrastructure package passed by lawmakers in November 2021, $65 billion is allocated to investment in clean energy transmission, such as building new power lines to facilitate renewable energy. More recently, $369 billion has been flagged for clean energy and climate change initiatives as part of the Inflation Reduction Act (IRA). At the state level, many jurisdictions offer solar initiatives in conjunction with federal enticements, such as rebates, tax credits, and performance-based incentives.

Energy research and consulting firm Wood Mackenzie forecasts investment in renewables to reach $1.2 trillion by 2035. This presents an opportunity for investors to invest in companies that develop and manufacture renewable energy infrastructure and related components.

Untapped Potential: Government incentives encourage alternative energy companies to invest in the sector, helping realize its enormous untapped potential. As new innovative green energy technologies emerge, investors have the opportunity to take advantage by becoming early adopters in companies that may go on to become major energy providers. Given renewable energy isn't capped by a finite supply like traditional fossil fuels, the sun, wind, or water is the limit.

Risk of Alternative Energy Stocks

Intermittency: Alternative energy sources cannot be called upon at all times, making some forms of renewable technology in its current form unreliable. For instance, solar panels may generate sufficient energy sources in some locations during the summer months but not through the winter period. Similarly, wind turbines may produce enough energy in the spring but come up short of generating sufficient electricity in the fall.

In addition, newer technologies in the future have the potential to make some of today's alternative energy sources redundant, adding disruption risk to the sector.

Storage Limitations: Due to the intermittent output of alternative energy, there's a high need for storage. While there are many options currently available, such as batteries and the conversion of renewables into hydrogen, they are often costly and limited in the amount of energy they can store. An inability to store clean energy effectively in the quantities needed represents a risk to its widespread adoption and use. However, storage challenges should ease in the years ahead as new technological advancements improve capacity and reduce costs.

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