Expert Picks: Five 🌞 Stocks Heating Up the Market in 2024

The world’s energy needs are soaring.

Yet, traditional fossil fuels are no longer the only solution.

Demand for clean energy sources like solar has become part of culture and government plans.

In the U.S., solar power generation is forecast to grow by 75% from 2023 to 2025.

Naturally, this is a big win for solar companies, and financial pros know it.

First Solar (FSLR) tops their list of solar stocks, as it did for most of 2023.

Considering it’s one of the only solar companies that turns a profit and generates positive cash flow, it’s not hard to see why.

Plus, First Solar’s vertically integrated supply chain avoids the controversial Xingiang region of China, known for human rights abuses.

Yet, the stock has been range bound for the better part of a year.

So, is there reason to believe it might be ready to break out?

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First Solar’s Business

The only top ten solar manufacturer in the U.S. not based in China, First Solar has carved out a niche with its thin-film photovoltaic (PV) modules.

The company offers a lower-carbon alternative to conventional crystalline silicon (c-Si) panels while steering clear of Chinese c-Si supply chains.

First Solar designs, manufacturers and sells cadmium telluride solar modules.

Although they primarily sell to large-scale commercial clients, you can find their systems in large scale residential projects as well.

Current plans aim for a multi-year expansion in manufacturing capacity in the U.S. and abroad.

Source: First Solar Q4 2023 Earnings Presentation

First Solar benefits directly from the Inflation Reduction Act, receiving multiple tax credits and benefits for domestic solar production.

The company’s latest quarterly report highlighted substantial revenue growth in 2023 while providing a strong forecast for 2024 with Capex being paid for by current cash flow.

Financials

Source: Stock Analysis

First Solar hasn’t had it easy over the last decade.

Revenues swung around violently, only up slightly from where they were in 2016.

However, margins improved substantially over that same period, with all of them from gross to profit margin the highest they’ve been in a decade.

This speaks to a business that’s matured from a speculative investment to a real business.

Currently, First Solar has hardly any debt, and as we noted early, plows its cash back into Capex.

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Valuation

Source: Seeking Alpha

Only three of the top five solar stocks turn a profit: First Solar, JinkoSolar (JKS), and SolarEdge (SEDG) turn a profit on paper.

However, only First Solar is cash flow positive – a critical component to long-term survival in this industry.

Also of note, First Solar trades at a Price-to-Earnings Growth non-GAAP ratio of 0.42x, indicating a decent discount on the stock, provided the company maintains its profitable growth.

Growth

Source: Seeking Alpha

Speaking of growth, the last year has been exceptionally volatile across the board.

Sunrun (RUN), SolarEdge, and SunPower saw sales fall last year, while First Solar and JinkSolar delivered sizable growth. And both First Solar and JinkoSolar expect decent revenue growth in 2024.

However, as we noted earlier, First Solar’s CAGR over the last 3-5 years was less than stellar, especially compared to JinkoSolar.

Profitability

Source: Seeking Alpha

At the end of the day, only one company generates positive cash from operations, and that’s First Solar.

It boasts the best margins along with a decent return on equity.

Our Opinion 8/10

Of the top Solar stock searches, First Solar is certainly the best of the bunch.

The company has a solid growth plan and runs its business profitably.

Our only concern is the company’s reliance on growing global demand and government support.

So long as these remain in place, First Solar should excel.

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