Top Solar Stocks for January 2019

While fossil fuels remain the most popular source of energy globally, renewable energy sources like solar power have been steadily gaining in terms of overall use. In 2018, according to the Solar Energy Industries Association, a new solar energy project launched every 100 seconds. Companies considered to be solar-focused come from multiple sectors, including utilities, industrials, energy, and more.

Some of the most popular solar companies today are First Solar, Inc. (FSLR) and SunPower Corporation (SPWR). While some of the major mainstream utilities and energy companies also have solar and renewable energy divisions, these corporations are not typically included in listings of solar companies because they do not focus the majority of their efforts in this area.

It is an exciting time for solar energy. The next five years is projected to bring an additional 68 gigawatts of solar capacity, more than doubling the current capacity. More than three-quarters of Americans feel that their utility provider should invest more heavily in solar energy.

Nonetheless, December was a difficult month for companies engaged in solar energy work. Much of this was due to broad declines across the market, but there were other factors as well; uncertainty about the Trump administration's approach to renewable energy, natural disasters, and other external events put a damper on solar stocks during this period.

Here is a look at the top performing individual solar companies that had market caps of at least $2 billion in December 2018. The list here is presented in order of monthly performance based on the opening stock price, as of December 3, 2018, and closing price as of December 31, 2018. The performance has been compared to the S&P Global Clean Energy Index average returns for the same period of -8.0%.

1. TerraForm Power (TERP)

• Market Cap: $2.38 billion
• Performance: -1.84%

2. Ormat Technologies Inc. (ORA)

• Market Cap: $2.83 billion
• Performance: -7.14%

3. First Solar, Inc. (FSLR)

• Market Cap: $5.38 billion
• Performance: -8.50%

4. Pattern Energy Group Inc. (PEGI)

• Market Cap: $2.06 billion
• Performance: -9.17%

5. SolarEdge Technologies Inc. (SEDG)

• Market Cap: $2.04 billion
• Performance: -10.58%

TerraForm Power is a New York-based owner and operator of renewable power assets. The company's portfolio includes both solar and wind assets producing a combined 3600 MW and located across the United States as well as in Canada, Spain, Portugal, Chile, Uruguay, and the U.K.

In November 2018, TerraForm Power reported an impressive set of Q3 results. John Stinebaugh, the CEO of TerraForm, explained that “in the past year, we have made significant strides to extract additional cash flow from our existing portfolio of assets. As we look forward, we are turning our focus to deploying capital to grow our business through organic growth opportunities and add-on acquisitions.”

For Q3 2018, TerraForm generated more than 2,000 GWh of power (as compared with under 1,400 for Q3 of 2017). TerraForm also saw improvements year-over-year to its adjusted EBITDA, CAFD, and earnings (loss) per share. It's possible that this good news bolstered TerraForm's performance heading into 2019. Although it took a loss for December, it nonetheless outperformed the rest of the solar energy industry.

Reno, Nevada-based renewable energy company Ormat Technologies designs and builds power supply equipment for renewable energy power plants in 30 countries. Ormat was founded in 1965, making it one of the most established renewable energy operations in the U.S. It built one of the first solar energy power stations in the world in the 1970s, located in Israel.

In the third quarter of 2018, Ormat saw its total revenues climb by 6%, even in spite of some challenges: the company saw some of its operations in Hawaii close down during that period. Nonetheless, electricity revenue was up by 5.4% year-over-year. When Ormat releases its Q4 figures on February 26, 2019, that will likely prove to be a major driver of the stock's performance in the weeks to follow.

First Solar, an Arizona-based solar technologies company, markets itself as having the "strongest balance sheet in the industry." The company prioritizes R&D with an emphasis on increasing energy yield and grid stability and on decreasing costs.

First Solar was not able to outperform our S&P Index benchmark for December of 2018. While the company offers strong value, it could not differentiate itself adequately from a growing and highly competitive market. Fortunately, First Solar will enjoy an exclusion from tariffs for its solar panels, and given expectations that solar panel demand will increase in 2019, the company's fortunes may be turning.

Pattern Energy Group operates utility-scale projects in the U.S., Canada, and Japan. The company launched in 2009 and IPO'd in 2013. It has since grown to nearly triple its size at the time of the public offering. It currently maintains an operational capacity of nearly 3,700 MW.

Pattern Energy has seen impressive growth across numerous metrics in recent years, including cash flow, dividends, and revenue. It enjoys an 8%+ yield, ensuring that its cash flow can catch up to its dividends, which are currently frozen. Should these trends continue, Pattern Energy is likely to remain a strong buy heading into the future.

SolarEdge Technologies builds and distributes equipment and technology for photovoltaic arrays. The company, which is based in Israel, launched in 2006 and has since gone on to IPO in 2015. Later in 2015, SolarEdge partnered with Tesla Motors to jointly develop a photovoltaic power solution for the residential market.

Like First Solar and other producers of solar panels and related components, SolarEdge has seen some difficulties in conjunction with trade tensions between the U.S. and China, tariffs, and other effects of the Trump administration. Because of that, SolarEdge's performance lagged behind our benchmark in December. It faces an uphill battle in 2019, and its fortunes will likely depend upon demand for its PV products.

With renewable energy predicted to represent a larger share of total U.S. electricity generation than nuclear and coal in the next decade, many investors feel that the companies listed above are a sure thing over the long term. However, they still face significant challenges in the shorter term, warranting caution as a result.