5 Alternative Energy Stocks to Buy Backed by EV Market Boom
As the electrification of the transportation sector booms, the U.S. electric vehicle market is expected to register solid growth in the near term. This should bolster alternative energy stocks’ prospects. However, the rising price of wind turbines and the strained U.S.-China relationship might negatively impact the growth rate of these stocks. Nevertheless, per the U.S. Energy Information Energy (EIA), wind generation in the United States is projected to increase 5% in 2024, which should bode well for the alternative energy industry. The forerunners in the U.S. alternative energy industry are Constellation Energy Corporation CEG, Texas Pacific Land TPL, NextEra Energy Partners NEP, Crescent Energy Company CRGY and Diversified Energy Company Plc DEC.
About the Industry
The Zacks Alternative Energy industry can be fundamentally segregated into two sets of companies. While one group is involved in the generation and distribution of alternative energy and electricity from sources like wind, natural gas, biofuel, hydro and geothermal, the other is engaged in the development, design and installation of renewable projects involving these alternative energy sources. The industry also includes a handful of stocks that offer fuel cell energy solutions, which have gained popularity as an affordable clean energy lately. Per the International Energy Agency’s (IEA) latest World Energy Investment report published in June 2024, global spending on clean energy technologies and infrastructure is on track to reach $2 trillion in 2024. This surely reflects the solid growth opportunities that the clean energy industry has to offer to its participants.
3 Trends Shaping the Future of the Alternative Energy Industry
Wind Energy – A Key Growth Catalyst: Among alternative energy sources, wind energy has been making noticeable progress in the United States. Per a report by EIA, wind turbines were the source of about 10.2% of total U.S. utility-scale electricity generation in 2023. Looking ahead, per EIA’s latest Short-Term Energy Outlook published in June 2024, wind generation in the United States is projected to increase 5% in 2024, while wind energy’s share in total electricity generation is anticipated to reach 11% by 2024-end. This reflects a solid growth opportunity for the U.S. wind market at present, which, in turn, should boost the overall expansion of the alternative energy industry.
EV Market Boom to Boost Clean Energy: Electric Vehicle (EV) plays a critical role in decarbonizing the transportation sector. Therefore, as electrification booms in this space, more individuals are choosing to switch from gasoline-powered vehicles to EVs each year, thereby boosting the market for EVs. In the United States, favorable government policies and support in terms of subsidies and grants, tax rebates, and other non-financial benefits in the form of carpool lane access, along with declining battery prices, have been boosting the EV market. To this end, it is imperative to mention that the U.S. EV market size is expected to register a CAGR of 18.2% between 2024 and 2028, as estimated by a report from Statista. Such an impressive outlook bolsters the prospects of clean energy stocks, which offer the largest electric vehicle charging network in the United States.
Rising Costs & Other Headwinds: The steadily rising cost of renewable installations in recent times has been posing a significant challenge for the clean energy installers. In particular, the rising price of steel, which is used to make the giant wind turbine blades, has been pushing up the cost of wind installation lately.
Apart from steel, the most significant mineral requirements in the wind industry are copper, zinc, manganese, chromium, nickel, molybdenum and rare earths. The average price of these seven metals has risen 93% between January 2020 and March 2023 (as stated by an IMF report). Resultantly, the levelized cost of electricity of a subsidized U.S. offshore wind project has increased almost 50% in 2023 from the 2021 level in nominal terms, according to a report published by BloombergNEF in August 2023.
Further, the fallout in the bilateral relationship with China can have a direct impact on the green energy industry. This is because China accounts for up to 90% of refining capacity for the so-called rare earth elements used in electric motors, wind turbine generators and other green energy products, per the Energy Transitions Commission. So, any deterioration in the relationship with China might impact the green energy supply chain in the United States, thereby impacting the alternative energy industry.
Zacks Industry Rank Reflects Bright Outlook
The Zacks Alternative Energy industry is housed within the broader Zacks Oils-Energy sector. It carries a Zacks Industry Rank #86, which places it in the top 34% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
The industry’s position in the top 50% of the Zacks-ranked industries is due to a positive earnings outlook for the constituent companies in aggregate. Looking at the aggregate earnings estimate revisions, it appears that analysts have gained confidence in this group’s earnings growth potential over the past few months. The industry’s earnings estimate for the current fiscal year has moved up 4.1% to $1.78 per share since Apr 30.
Before we present a few alternative energy stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Beats S&P 500 & Sector
The Alternative Energy Industry has outperformed the Zacks S&P 500 composite and its sector over the past year. The stocks in this industry have collectively surged 37.6% in the past year compared with the Oils-Energy Sector’s 14.8% growth. The Zacks S&P 500 composite has gained 27.4% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month EV/EBITDA ratio, which is commonly used for valuing alternative energy stocks, the industry is currently trading at 8.90 compared with the S&P 500’s 19.83 and the sector’s 3.03.
Over the past five years, the industry has traded as high as 9.05X, as low as 7.27X and at the median of 8.37X, as the charts show below.
EV-EBITDA Ratio (TTM)
5 Alternative Energy Stocks to Buy
Crescent Energy Company: Based in Fort Worth, TX, it is an independent oil and natural gas company, which acquires, explores, develops, exploits and produces crude oil and natural gas properties principally in the shallow waters of the Gulf of Mexico and onshore properties in Texas, Oklahoma, Louisiana and Wyoming in the United States. On May 16, 2024, Crescent Energy announced that it has signed an agreement to acquire SilverBow Resources for $2.1 billion. This buyout should position Crescent as the second-largest operator in the Eagle Ford Shale and is expected to earn annual synergies of $65-$100 million for CRGY through improved capital allocation and operational efficiencies.
CRGY boasts a four-quarter average earnings surprise of 112.25%. The consensus estimate for the company’s 2024 sales is pegged at $2.42 billion, implying an improvement of 20.4% from the previous year’s reported figure. CRGY currently sports a Zacks Rank #1 (Strong Buy).
Price & Consensus: CRGY
NextrEra Energy Partners: Based in Juno Beach, FL, it is a growth-oriented limited partnership, which owns a portfolio of contracted renewable generation assets consisting of wind and solar projects in North America. On Apr 23, 2024, the company released its first-quarter 2024 results. The firm’s operating revenues of $257 million increased 4.9% from the prior-year period’s level.
The company posted an earnings surprise of 525% in the last reported quarter. The consensus estimate for NEP’s 2024 sales is pegged at $1.34 billion, implying an improvement of 7.3% from the prior-year reported actuals. The company currently sports a Zacks Rank #1.
Price & Consensus: NEP
Diversified Energy Company: Based in Birmingham, AL, it is an energy company, focused on natural gas and liquids production, transport, marketing and well retirement. On May 29, 2024, the company announced that as part of the annual reconstitution of the Russell stock indexes, it would be included in the Russell 2000 Index effective at the opening of U.S. equity markets on Jul 1, according to the preliminary list of additions posted on May 24. This is likely to increase DEC’s exposure to the U.S. investment community.
The Zacks Consensus Estimate for the company’s 2024 earnings is pegged at $1.66, implying an improvement of 12.9% from the previous year’s reported figure. The consensus estimate for DEC’s 2024 sales is pegged at $937.1 million, implying an improvement of 7.9% from the prior-year reported actuals. The company currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price & Consensus: DEC
Texas Pacific Land: Based in Dallas, TX, the company is one of the largest landowners in the state of Texas. It also generates revenues from pipeline, power line and utility easements, commercial leases, material sales and seismic and temporary permits related to land uses, including midstream infrastructure projects and hydrocarbon processing facilities. On Jun 13, 2024, the company announced that its board of directors approved a $10.00 per share special dividend, payable on Jul 15 to stockholders of record at the close of business on Jul 1.
The stock boasts an average earnings surprise of 9.71% for the last four quarters. The consensus estimate for TPL’s 2024 sales is pegged at $724.7 million, implying an improvement of 14.7% from the previous year’s reported figure. The company currently carries a Zacks Rank #2.
Price & Consensus: TPL
Constellation Energy: Based in Baltimore, MD, the company is the nation's largest producer of carbon-free energy and provides sustainable solutions to homes, businesses and public-sector customers. On Jun 25, 2024, the company released its 2024 Sustainability Report, highlighting the company’s sustainable business strategy focused on accelerating the nation’s transition to a carbon-free energy future.
CEG boasts a long-term earnings growth rate of 14.6%. Its shares surged 128.1% in the past year. CEG currently carries a Zacks Rank #2.
Price & Consensus: CEG
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Constellation Energy Corporation (CEG) : Free Stock Analysis Report
Diversified Energy Company PLC (DEC) : Free Stock Analysis Report
NextEra Energy Partners, LP (NEP) : Free Stock Analysis Report
Texas Pacific Land Corporation (TPL) : Free Stock Analysis Report
Crescent Energy Company (CRGY) : Free Stock Analysis Report
