5 Alternative Energy Stocks to Buy Boosted by the Electric Vehicle Boom

With the electrification of the transportation sector rapidly increasing, the U.S. electric vehicle market is expected to experience solid growth in the near term. This should improve the outlook for alternative energy companies. However, rising prices of wind turbines and tense U.S.-China relations may negatively impact the growth dynamics of these stocks. Nevertheless, according to the US Energy Information Energy (EIA) study, wind energy production in the United States is expected to increase by 5% in 2024, which should bode well for the alternative energy industry. They are the forerunners of the American alternative energy industry Constellation Energy Company CEG, Texas Pacific Land Third party liability insurance, NextEra Energy Partners NEP- Półsiężyc Energy Company CRGY i Diversified Energy Company Plc DECEMBER

About the industry

The Zacks Alternative Energy industry can be broadly divided into two sets of companies. While one group is engaged in the generation and distribution of alternative energy and electricity from sources such as wind, natural gas, biofuels, hydropower, 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 offering fuel cell-based energy solutions, which have recently gained popularity as an affordable clean energy option. According to the latest Global Energy Investment Report by the International Energy Agency (IEA), released in June 2024, global spending on clean energy technologies and infrastructure is on track to reach $2 trillion by 2024. This certainly reflects the solid growth opportunities that the clean energy industry has to offer its participants.

3 trends shaping the future of the alternative energy industry

Wind energy – a key catalyst for growth: Among alternative energy sources, wind energy has made noticeable progress in the United States. According to the EIA report, wind turbines accounted for approximately 10.2% of total U.S. utility-scale electricity generation in 2023. Looking ahead, according to the latest EIA Short-Term Energy Report, released in June 2024, it is projected that wind energy production in the United States will increase by 5% in 2024, while the share of wind energy in total electricity generation is expected to reach 11% by the end of 2024. This reflects a solid growth opportunity for the current US wind energy market, which with railways should enhance the overall expansion of the alternative energy industry.

Electric Vehicle Boom to Boost Clean Energy: The electric vehicle (EV) plays a key role in decarbonizing the transport sector. Therefore, as electrification booms in this space, more and more people are choosing to switch from gasoline-powered vehicles to EVs every year, which is driving the EV market. In the United States, favorable government policies and support in the form of subsidies and grants, tax breaks and other non-financial benefits in the form of access to car-sharing lanes, along with falling battery prices, are driving the EV market. To this end, it is essential to mention that, according to Statista report estimates, the US EV market size is expected to register a CAGR of 18.2% from 2024 to 2028. Such impressive prospects are strengthened by the prospects of clean energy stocks that offer the largest electric vehicle charging network in the United States.

Rising costs and other headwinds: The steadily rising costs of renewable installations have recently posed a significant challenge to clean energy installers. In particular, the rising cost of steel, from which giant wind turbine blades are made, has recently driven up the costs of wind installations.

In addition to steel, the most important minerals in the wind industry are copper, zinc, manganese, chromium, nickel, molybdenum and rare earth elements. The average price of these seven metals increased by 93% between January 2020 and March 2023 (according to an IMF report). As a result, the levelized cost of electricity for a subsidized U.S. offshore wind project increased by almost 50% in 2023 compared to 2021 levels on a nominal basis, according to a report published by BloombergNEF in August 2023.

In addition, spillovers from bilateral relations with China could have a direct impact on the green energy industry. That’s because China accounts for 90% of the refining capacity for so-called rare earth elements used in electric motors, wind turbine generators and other green energy products, according to the Energy Transitions Commission. So any deterioration in relations with China could affect the U.S. green energy supply chain and, in turn, the alternative energy industry.

The Zacks Industry Rank reflects good prospects

The Zacks Alternative Energy industry falls within the broader Zacks Oils-Energy sector. It has a Zacks Industry Rank of 86, putting it in the top 34% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, essentially an average of the Zacks Rank of all member companies, indicates strong near-term prospects. Our research shows that the top 50% of 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 Zacks-ranked industries is driven by positive earnings outlooks for its constituent companies on a combined basis. Looking at the earnings estimate revisions, it appears that analysts have gained confidence in the earnings growth potential of this group over the past few months. The industry’s earnings estimate for the current fiscal year has risen 4.1% to $1.78 per share since April 30.

Before we present some alternative energy stocks worth including in your portfolio, let’s take a look at the latest stock performance and valuation picture for this industry.

Industry beats S&P 500 and sector

Over the last year, the Alternative Energy industry has outperformed the Zacks S&P 500 composite and its sector. Shares in this industry have collectively risen 37.6% over the past year, compared with the oil and energy sector’s gain of 14.8%. The Zacks S&P 500 composite gained 27.4% over the same period.

Price performance in one year

Current industry valuation

Based on the trailing 12-month EV/EBITDA ratio, a ratio commonly used to value alternative energy stocks, the industry’s stock is currently valued at 8.90, compared to the S&P 500’s ratio of 19.83 and the sector as a whole at 3.03 .

Over the past five years, stocks in this industry have had a high of 9.05X, a low of 7.27X, and a median of 8.37X, as the charts below show.

EV-EBITDA (TTM) ratio

5 Alternative Energy Stocks to Buy

Półsiężyc Energy Company: Headquartered in Fort Worth, Texas, is an independent oil and gas company that acquires, exploits, develops, produces and produces oil and natural gas reserves primarily in the shallow waters of the Gulf of Mexico and onshore in Texas, Oklahoma, Louisiana and Wyoming in United States. On May 16, 2024, Crescent Energy announced that it had signed an agreement to acquire SilverBow Resources for $2.1 billion. This buyout should make Crescent the second-largest operator in the Eagle Ford Shale and is expected to generate annual synergies of $65 million to $100 million for CRGY through improved capital allocation and operational efficiencies.

CRGY boasts a trailing four-quarter average earnings surprise of 112.25%. The company’s consensus sales estimate for 2024 is $2.42 billion, which would represent a 20.4% improvement from the prior year. CRGY currently has a Zacks Rank #1 (Strong Buy).

Price and consensus: CRGY

NextrEra Energy Partners: Based in Juno Beach, Florida, this is a growth-oriented limited partnership that owns a portfolio of contracted renewable energy assets consisting of wind and solar projects in North America. On April 23, 2024, the company reported its first quarter 2024 results. The company’s operating revenue of $257 million increased 4.9% compared to the prior year level.

The company delivered an earnings surprise of 525% in the last quarter. The consensus estimate for NEP’s 2024 sales is $1.34 billion, which would represent a 7.3% improvement from the actual reported in the prior year. The company currently holds a Zacks Rank of #1.

Price and consensus: NEP

Diversified Energy Company: Headquartered in Birmingham, AL, it is an energy company focused on natural gas and liquids production, transportation, marketing and well withdrawals. On May 29, 2024, the company announced that as part of its annual index reconstruction, Russell will be included in the Russell 2000 index, which will take effect when U.S. equity markets open on July 1, in line with the initial list of additions published on May 24. This will likely increase DEC’s exposure to the U.S. investment community.

The Zacks Consensus Estimate for the company’s 2024 earnings is $1.66, which would represent a 12.9% improvement from the prior year’s reported figure. The consensus estimate for DEC’s 2024 sales is $937.1 million, representing a 7.9% improvement from the prior year’s reported actual figure. The company currently holds a Zacks Rank of #2 (Buy). You can see complete list of today’s Zacks #1 Rank stocks here.

Price and consensus: December

Texas Pacific Land: Headquartered in Dallas, Texas, 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 interim permits related to land use, including inland infrastructure projects and hydrocarbon processing plants. On June 13, 2024, the company announced that its board of directors had approved a special dividend of $10.00 per share, payable on July 15 to existing shareholders at the close of business on July 1.

The stock has an average earnings surprise of 9.71% over the last four quarters. The consensus estimate for TPL’s 2024 sales is $724.7 million, which would represent a 14.7% improvement from the prior year. The company currently has a Zacks Rank #2.

Price and consensus: TPL

Constellation Energy: Headquartered in Baltimore, Maryland, the company is the nation’s largest producer of zero-emission energy and provides sustainable solutions for homes, businesses and public sector customers. On June 25, 2024, the company released its 2024 Sustainability Report, which highlighted the company’s sustainable business strategy focused on accelerating the country’s transition to a zero-emission energy future.

CEG boasts a long-term earnings growth rate of 14.6%. The stock is up 128.1% over the past year. CEG currently has a Zacks Rank #2.

Price and consensus: CEG

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