3 Clean Energy Stocks to Buy During Downturns

While the stock market has reached record highs in 2024, the energy sector has lagged, with many names still feeling the pressure of high inflation, high interest rates and an uncertain demand environment. Morgan Stanley analysts suggest that now is the perfect time to buy clean energy stocks at a low point, as the brokerage firm believes the industry is poised for strong growth regardless of the November election outcome. Geopolitical tensions in the Middle East and ongoing support for renewable energy initiatives, including bipartisan support for various tax breaks, are just some of the factors creating a favorable backdrop for these stocks, according to the firm.

At its June meeting, OPEC extended most of its production cuts through the end of 2025, providing a floor to oil prices and strengthening the outlook for traditional energy stocks. The move also underscores the growing importance of renewables as the world transitions away from fossil fuels. Clean energy stocks, while currently undervalued, have significant growth potential—or, as Morgan Stanley put it, “Renewable demand is a powerful force.”

With the energy sector standing out as one of the cheapest sectors of the market, now is a good time to invest in high-quality clean energy companies. These stocks, trading at attractive valuations, offer a compelling opportunity for both new investors and those looking to diversify their energy holdings.

#1. Aes Corporation

The Aes Corp. (AES), headquartered in Virginia, is a global energy company that develops and operates a broad range of power plants and energy projects. Specializing in renewable energy, energy storage, and advanced grid technologies, AES is dedicated to providing sustainable and innovative energy solutions worldwide. The company owns several power plants to generate electricity, which is sold to customers at wholesale prices. It uses a variety of resources to produce electricity, including coal, gas, hydro, wind, and solar. AES has a market capitalization of $12.5 billion.

The stock has underperformed over the past year, losing nearly 15% of its value, compared to the S&P 500 ($SPX)’s 27.7% gain over the past 52 weeks. Higher interest rates have put pressure on stocks.

From a valuation perspective, AES stock is currently trading at 9.28 times earnings and 0.97 times sales, which is significantly lower than its utility peers. This means that AES stock is undervalued and investors can buy it at a reasonable price.

AES also has a good reputation for paying dividends to its shareholders. The annual dividend is $0.69 per share, which gives a yield of 3.90%. The relatively low dividend payout ratio of 24.47% underscores AES’s commitment to returning value to investors while maintaining financial stability.

The company announced its first-quarter results in May 2024. Sales were $3.08 billion, up 3.9% from the previous quarter. Additionally, net income rose to $432 million, up 559%, while adjusted earnings per share of $0.50 exceeded the consensus estimate of $0.32.

AES Expands Green Hydrogen Production in Texas with Air Products (APD) The two companies are jointly investing $4 billion to build a large-scale green hydrogen production facility in Wilbarger County, with the initiative including 1.4 gigawatts (GW) of wind and solar power along with an electrolyzer designed to produce more than 200 metric tons of green hydrogen per day.

Wall Street analysts are generally bullish on AES stock. The group has given the utility player a consensus rating of “Moderate Buy,” with an average price target of $22.86, indicating 27.5% upside potential.

#2. First Solar

Headquartered in Tempe, Arizona, First Solar (FSLR) is a leading solar technology company specializing in the production of solar panels and the supply of utility-scale photovoltaic power plants. The company continues to expand its global presence with significant projects and partnerships across continents. This expansion includes the development of advanced solar technologies and the establishment of new manufacturing facilities to meet the growing demand for renewable energy solutions.

The solar stock, valued at $24.1 billion at market cap, has been hit by the Fed’s rate-raising campaign. But the company has delivered a solid return in 2024 despite persistently high interest rates, gaining 32.6%. The stock has retreated 25% from its highs a month ago, allowing investors to buy shares at a low point.

Currently, First Solar shares are trading at an attractive price of $16.59 per forecast earnings, which is significantly lower than the sector median as well as the 5-year average valuation.

First Solar has had a decent Q1 this year in terms of revenue and earnings growth. Revenue rose to $794 million, up 44.8% year-over-year. Similarly, EPS came in at $2.20, easily surpassing analyst expectations. Notably, the company’s profitability margins are also significantly higher than its historical averages.

During the Q1 Earnings conference call, the company announced a total booking backlog of 78.3 GW through 2030, offering clear long-term revenue visibility. In addition, First Solar has a total booking opportunity of 72.8 GW. The growth prospects remain promising if even half of this potential opportunity turns into backlog. Additionally, the company aims to double its production capacity by 2026.

First Solar is forecast to increase earnings per share by 75% this fiscal year and by 55% in 2025. The company’s return on equity is expected to reach 23.6% within three years.

Of the 30 analysts covering First Solar stock, 22 have a “Strong Buy” rating, 1 assigns a “Moderate Buy” rating and 7 call it a “Hold.” The group has an average price target of $284.15, implying a 24.3% upside potential.

#3. NextEra Energy

Florida-based NextEra Energy (NEE) is a global leader and innovator in the renewable energy sector, known for its transformational impact on sustainable energy solutions. Through its subsidiaries, including Florida Power & Light Company and NextEra Energy Resources, the company powers millions of homes and businesses while pioneering wind, solar and energy storage technologies. In fact, its subsidiary, Florida Power & Light, is one of the largest utilities in the United States. NEE has a market capitalization of $148 billion.

NEE shares are up just 1.7% over the past 52 weeks, but are up 20% in 2024.

In terms of valuation, NEE shares are valued at 21.17 times forward earnings and 5.34 times forward sales, which is lower than average historical multiples.

What’s more, NEE pays a dividend, with the annual payout of $2.06 translating to a yield of 2.86%. With over 28 years of consistent dividend growth, the company has earned Dividend Aristocrat status, making it a solid choice for income-oriented investors.

Given that NEE has a long history of earnings stability. However, it saw a decline in revenue growth in Q1 results, due to increased operating expenses and project delays. While revenue of $5.73 billion fell short of consensus estimates, adjusted EPS of $0.91 beat analyst expectations.

In addition, NEE is narrowly focused on expanding its capacity. To that end, the company announced it will develop up to 4.5 GW of new solar generation and energy storage projects in partnership with Entergy (ETR).

Wall Street analysts are bullish on NEE shares, which have a consensus of “Moderate Buy” with an average price target of $77.59. This suggests a modest upside of 6.4% from the current price. Of the 17 analysts covering the stock, 10 rate it as a “Strong Buy,” 1 assigned it a “Moderate Buy,” 5 suggest a Hold, and 1 recommends a “Strong Sell.”

On the date of publication, Nauman Khan did not have (directly or indirectly) a position in any of the securities mentioned in this article. All information and data in this article is for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.