Among the many secrets to successful investing, one of the most powerful is to identify promising sectors that haven’t seen much interest… then wait for the masses to catch up.
In the technology sector, this usually happens with unfamiliar areas, where investors will only go halfway. For example, they’ll buy a solar panel company, but won’t peel back the layers to reveal even better opportunities, such as microinverter companies.
And speaking of solar opportunities, there are a few highfliers in the market at the moment that pack a punch in this still-emerging area…
Thanks, Uncle Sam
In 2013, solar energy was on a tear.
But the trend hasn’t continued into 2014, which has some investors wondering if the moment has passed.
The U.S. renewable energy space is getting some real traction because tax breaks are still available. The federal tax break will end in 2016, so we still have more than 18 months where solar should expand quickly in both the residential and utility areas.
There’s a number of ways to buy in…
Solar panel makers, especially the likes of First Solar (FSLR), have soared recently. Granted, that follows a big selloff, but importantly, it’s happening on good news.
For example, FSLR is up almost 20% in recent weeks after giving very bullish forward guidance for fiscal 2015 and 2016.
This is due to anticipation that many contracts will roll in before the 2016 federal subsidy deadline.
In the meantime, FSLR needs to expand into residential and commercial operations.
That’s because the competition in photovoltaics (PV) space is still tight and First Solar isn’t the only player here. Rivals include SunPower (SPWR), Yingli (YGE) and Trina (TSL). They’re all globally diversified and doing well.
However, the most interesting play isn’t PV makers…
The Best Player in a Fast-Growing Area
It’s companies that make the panels more efficient and help PV installation owners manage their systems easily and effectively.
These are the microinverter and optimizer companies. There are only a few publicly traded ones, but Enphase Energy (ENPH) is the dominant player in this growing space.
Its microinverter delivers power conversion and an embedded software subsystem. This subsystem helps customers analyze system data and maximize efficiencies.
First, Enphase’s Envoy communications gateway is installed in the owner’s home or business and serves as a networking hub. It collects data from the microinverter and sends it to the company’s data center.
Enphase’s web-based Enlighten software collects and analyzes this information to enable system owners to monitor the performance of their solar equipment.
Another firm in this space that bears watching is SolarBridge, which just raised another $42 million from venture capital investors, including large-cap utility, Exelon (EXC).
The other way to play solar for the long term is with bigger, more-integrated firms that do more than simply sell PV’s or complementary equipment.
There are two names that stand out…
First, one of the most visible solar names – SolarCity (SCTY). It’s proved to be one of the solar juggernauts over the past couple of years, putting solar energy on the roofs of homes, businesses and government buildings.
Keep in mind, though, that it’s one of those stocks that fluctuates pretty wildly – up 40% one minute, then down 30% the next. So expect volatility.
At the moment, there’s a huge amount of short interest on the stock – and they’ve profited, with shares of more than 26% in the past month. But the long-term story is promising.
Another well-established company involved in the solar industry is NRG Energy (NRG).
NRG is a power generation and retail electricity company, engaged in the ownership and operation of power generation facilities and energy trading.
It boasts a broad, diversified business across a number of energy-hungry states and has a more compelling portfolio of companies and services than SolarCity.
For example, what makes NRG unique these days is its growing portfolio of green energy companies. Brands like NRG Solar, NRG Residential Solar, NRG Geothermal, eVgo, Reliant Energy, Green Mountain Energy and Petra Nova all deliver modern, cleantech solutions to growing energy demands.
And last month, NRG acquired Roof Diagnostics Solar, adding to its stable of innovative companies.
If you’re investing in the solar space, the fact that NRG is a true, diversified energy company, whereas SolarCity is basically a financing firm operating in a hot market, means it offers a better risk/reward profile.