We recently compiled a list of the 7 Cheap Solar Stocks To Buy According To Hedge Funds. In this article, we will look at where NextEra Energy Partners (NYSE:NEP) ranks among cheap solar stocks to buy according to hedge funds.
Global Solar Energy Market
Solar systems utilize photovoltaic effects to capture and convert solar radiation into forms of energy that can be used for residential, commercial, industrial, and even utility-scale applications. According to a report by Precedence Research, the global solar energy systems market is valued at $255.40 billion in 2024. It is expected to reach around $1.14 trillion by 2034, growing at a CAGR of 16.4%. The solar energy systems market has experienced rapid growth and transformation in recent years due to increasing global awareness of sustainable and renewable energy sources.
The Asia Pacific region dominates the market and is poised for continued growth as governments and industries focus on meeting renewable energy targets. India aims to attain 450 GW of renewable capacity by 2030 and is expected to propel the market growth in the region. According to the International Energy Agency, within 20 years, solar power in India is expected to surpass coal’s proportion in the country’s power-generating mix.
A combination of technological advancements, environmental concerns, supportive policies, and increasing consumer demand for clean and sustainable energy sources drives the growth in the North American region. The United States has seen substantial growth in residential and utility-scale solar installations and is a leading player in the North American solar energy market. In 2022, the United States added 14.1 GWh of energy storage to the electrical grid, a 34% year-over-year increase.
Governments worldwide have implemented supportive policies and financial incentives such as tax credits, subsidies, grants, feed-in tariffs, and net metering programs, which are key growth drivers in the solar panel market. However, cost and grid integration has been a major restraint for the market growth as the excess solar energy should either be transmitted back into the grid or stored in batteries for later use. Integrating solar energy into existing energy networks is technically challenging. It necessitates infrastructure to handle two-way energy flows while the costs of establishing large-scale energy storage systems are quite high, which limits the overall economic sustainability of solar energy systems.
Investment in Solar Energy Signals Bullish Outlook
BlackRock, one of the largest asset management companies in the world, is bullish on the solar market and recognizes the critical role solar energy plays in the transition to a low-carbon economy. The bank forecasts that the solar market will continue to grow rapidly in the coming years due to declining costs, increasing demand for renewable energy, and supportive government policies.
In June, the company invested $500 million in Recurrent Energy. The company has a global project development pipeline of 26 GW in solar and 56 GWh in storage and is expected to have 4 GW of solar and 2 GWh of storage in operation in the U.S. and Europe by 2026.
The company’s investment in Recurrent Energy will support its continued growth and development, enabling it to advance its high-value project development portfolio and transition from a pure developer to a developer plus long-term owner and operator in select markets. This investment also underscores its commitment to supporting companies driving innovation and growth in the solar industry.
The solar energy systems market is poised for rapid growth over the next decade, driven by increasing demand for sustainable energy sources and supportive government policies. While cost and grid integration challenges remain, technological advances and economies of scale are expected to drive down costs and improve efficiency. With that in context, let’s take a look at the 7 cheap solar stocks to buy according to hedge funds.
Our Methodology
To compile our list of 7 cheap solar stocks to buy according to hedge funds, we used clean energy ETFs, online rankings, and stock screeners to compile an initial list of 20 solar energy stocks. From that list, we screened for companies that are trading at a forward P/E ratio of under 20, as of September 22. We then narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
NextEra Energy Partners (NYSE:NEP)
Number of Hedge Fund Investors: 20
Forward P/E Ratio as of September 22: 11.23
NextEra Energy Partners (NYSE:NEP) is a publicly traded subsidiary of NextEra (NYSE:NEE). The company’s primary focus is on acquiring and managing clean energy projects across North America, and it has a diverse portfolio of wind and solar projects.
In Q2, NextEra Energy Partners (NYSE:NEP) added over 3,000 megawatts (MW) of new renewable energy projects. The new additions bring NextEra Energy Resources’ total backlog to approximately 22.6 gigawatts (GW), solidifying its position as a leader in the solar and renewables industry. Notably, 860 MW of the new projects come from agreements with Google to meet its data center power demand. NextEra Energy Partners’ (NYSE:NEP) solar portfolio is the largest in the United States and is going through a significant expansion.
On July 24, NextEra Energy Partners (NYSE:NEP) announced a 1.4% increase in its quarterly dividend, bringing it to $0.905 per share. This growth is underpinned by the company’s strong cash-generation capabilities. In the second quarter of 2024, NextEra Energy Partners’ (NYSE:NEP) cash available for distribution (CAFD) rose to $220 million, up from $200 million in the same quarter last year. Additionally, the company’s operating cash flow for the year’s first half increased to $309 million, compared to $296 million in the same period last year.
NextEra Energy Partners (NYSE:NEP) is trading 11.23 times its forward-year earnings, which represents a 38% discount to the sector median of 18.13. The company’s earnings are expected to grow by 2.26% this year. As of the end of the second quarter, 20 hedge funds held stakes in the company worth $71.16 million. Industry analysts have a consensus Buy rating on the stock, with an average share price target of $28.31, indicating a potential upside of 15.7% from its current level.
Overall NEP ranks 7th on our list of the cheap solar stocks to buy according to hedge funds. While we acknowledge the potential of NEP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NEP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. None. This article was originally published on Insider Monkey.