Companies investing in decarbonization translate into healthy growth and cash flows
Worldwide governments and the corporate sector are focusing on hitting the net zero target in the coming decades. This implies significant investments in the clean energy sector. While industry tailwinds are likely to last for several decades, it does not imply that clean energy stocks will continue to move in one direction.
So, expect phases of correction and consolidation on the back of near-term growth headwinds. Long term investors can seize a good entry opportunity in quality clean energy stocks to buy. In the last few quarters, several clean energy stocks have corrected because of macroeconomic headwinds, inflation and geopolitical factors. Now is a good accumulation opportunity.
Coming back to the industry potential, a recent report suggests that spending in clean energy “remains concentrated in a few countries and sectors.” As more countries participate, ample headroom opens up for robust growth beyond the decade.
Therefore, let’s talk about three stock bets that can be massive value creators.
Lithium Americas (LAC)
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Among the emerging lithium miners, Lithium Americas (NYSE:LAC) is significantly undervalued and poised for a large reversal rally. Even after multiple positive business developments, LAC stock has declined by 30% for year-to-date (YTD). This seems like a perfect time to accumulate. From current levels of $4.5, I would expect at least 5x returns in the next three years.
Notably, a lithium supply-gap is likely in the coming years, perhaps 2025. Beyond the decade, the supply-gap is likely to be acute. Therefore, investors can take advantage of the current weakness of lithium price.
Specific to Lithium Americas, its Thacker Pass project is likely to be a game-changer. The asset has an after-tax net present value of $5.7 billion and a mine life of 40 years. Further, once both phases commence production, the annual EBITDA from the asset is estimated at $2 billion.
In the recent past, the company has received a $2.26 billion loan commitment from the U.S. Department of Energy. Further, Lithium Americas has raised $275 million in an underwritten public offering. With the financial gap closed for the construction of the Thacker Pass project, LAC stock is positioned for a big rally.
First Solar (FSLR)
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First Solar (NASDAQ:FSLR) stock is marginally higher by 10% in the last 12 months. I expect a big breakout on the upside with FSLR stock trading at an attractive forward price-earnings ratio of 14.3. Recently, Fist Solar reported Q1 of 2024 numbers, and the Company beat top-line and bottom-line estimates. This strengthens the case for a strong rally from current levels.
Encouragingly, First Solar ended Q1 of 2024 with a total bookings backlog of 78.3GW. Moreover, the company has potential booking opportunities of 72.8GW. Thus, clear revenue visibility is becoming apparent for the coming years.
For the current year, First Solar has guided for sales volume of 15.6GW to 16.3GW. With new facilities going on-stream in 2024 and 2025, it’s likely that sales volume will increase at a healthy pace. This will support revenue growth and potential margin expansion. I must add that macroeconomic headwinds have impacted industry sentiments. With potential rate cuts in the coming quarters, it’s likely that growth will accelerate.
Linde (LIN)
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The hydrogen economy is likely to get bigger in the coming years with big investments planned. According to the International Energy Agency, production of low-emission hydrogen could reach 38 Mt in 2030. Linde (NASDAQ:LIN) is among the best hydrogen stocks to consider for long term value creation.
Importantly, LIN stock has been in a gradual uptrend in the last six months. However, valuations look attractive with the stock offering a dividend yield of 1.29%. Further, with significant commitment towards hydrogen investment, steady growth could be delivered. In 2023, Linde announced a target investment of $7 to $9 billion in the next two to three years in clean energy.
Additionally, the company has deep expertise in the sector. It operates 200 hydrogen refueling stations and 80 hydrogen electrolysis plants worldwide. Also, Linde is the operator of the world’s first high-purity hydrogen storage cavern. With this expertise, Linde is positioned to scale-up operations as the demand for clean hydrogen increases.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
