Top Solar Stocks

Top-performing solar stocks—including Daqo New Energy, Sunrun, and First Solar—have climbed by as much as 52% in the last year amid several quarters of record residential solar installations and the Inflation Reduction Act of Aug. 2022, which provides tax incentives and other benefits to further accelerate the growth of renewable energy infrastructure.

Select solar stocks surged even as the benchmark Invesco Solar ETF (TAN) lost almost a tenth of its value, though that decline wasn't as much as the Russell 1000 Index's 16% decline. All data are as of Dec. 7, 2022.

Here are the top three solar stocks with the best value, the fastest growth, and the most momentum.

Best Value Solar Stocks

These are the industrial stocks with the lowest 12-month trailing price-to-earnings (P/E) ratio. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows that 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. Daqo also builds photovoltaic wafers. On Nov. 7, Daqo announced a $700 million share repurchase program, effective from that date through Dec. 31, 2023.
• Canadian Solar Inc.: Canadian Solar designs, builds, and sells solar equipment for residential, commercial, and industrial customers. The company's products include solar modules, inverters, and system kits.
• Hannon Armstrong Sustainable Infrastructure Capital Inc.: Hannon Armstrong is a real estate investment trust (REIT) that invests in properties used for climate solutions, renewable energy, and related projects. Hannon Armstrong's next dividend of $0.375 per share is payable Jan. 6, 2023, to shareholders of record as of Dec. 28, 2022.

Fastest Growing Solar Stocks

These are the top solar stocks as ranked by a growth model that scores companies based on a 50/50 weighting of their most recent quarterly YOY percentage revenue growth and 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 figure or the other unrepresentative of the business in general. Companies with quarterly EPS or revenue growth of more than 2,500% were excluded as outliers.

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• 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 reported net losses that narrowed to $156 million for the third quarter, while revenues climbed by 44% to $632 million. Solar energy systems and product sales revenue increased by 74%, leading growth.
• Enphase Energy Inc.: Enphase is a global energy technology company that brings solar, batteries, and software together in one complete package. It supplies microinverter-based, solar-plus-storage systems. Enphase said on Oct. 25 that net income for the latest quarter more than quintupled to $115 million as revenue surged 81% to $635 million. Strong demand worldwide and particularly in North America and Europe helped to drive performance.
• Array Technologies Inc.: Array manufactures ground-mounting systems used in solar energy projects. The company sells its products to engineering, procurement, and construction firms and to large solar developers, independent power producers, and utilities, master supply agreements, or multi-year procurement contracts. Note that Array Technologies does not have an EPS growth figure in the chart above because EPS went from negative to positive over the period in question.

Solar Stocks with the Most Momentum

These are the solar stocks that had the highest total return over the last 12 months.

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• First Solar Inc.: First Solar designs and manufactures photovoltaic solar power systems and solar modules. It serves customers around the world. The company announced in mid-November that it plans to invest $1.1 billion to build its fourth American manufacturing facility, which will be located in Lawrence County, Alabama. First Solar's other American factories are in Ohio.
• Enphase Energy Inc.: See above for company description.
• Array Technologies Inc.: See above for company description.

The Impact of the Inflation Reduction Act on Solar Stocks

The Inflation Reduction Act, signed into law by President Biden in August 2022, is expected to have a significant impact on solar stocks. The law provides tax credits and rebates to provide financial incentives to Americans to use clean energy, including solar energy. The White House says that 7.5 million additional families will be able to install solar technology on their roofs with a 30% tax credit as a result of the law.

Solar stocks posted significant gains following the passage of the law. Overall, the law has the potential to significantly bolster demand for solar energy products.

Advantages of Investing in Solar Stocks

Two significant advantages of investing in solar stocks include the overall growth of the energy industry and the rapid growth in demand for alternative energy sources.

Market Size: The International Energy Agency (IEA) estimates that global energy demand increased 4.6% in 2021, with global energy investment for that year at $1.9 trillion. This marks a nearly 10% increase in investment from 2020 and suggests a strong growth trend for the energy industry overall.

Growth of Alternative Energy: The IEA expects fossil fuel demand to plateau in the 2030s before declining. If countries around the world commit to achieving net-zero emissions by 2050, this could create $27 trillion in demand for solar companies and other alternative energy producers.

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