The S&P 500’s year-to-date loss stands around 20% as of this writing, but not all sectors are doing as bad or worse than the benchmark. One of the most notable sectors that has held up well so far in 2022 is the clean energy sector. The iShares S&P Global Clean Energy Index Fund (ICLN, Financial) ETF is down just 9.84% year to date, with performance being boosted in large part by solar stocks.
Solar stocks are benefitting from several powerful long-term tailwinds, including the global push to transition to clean energy and supportive government incentives in many countries. There is also the fact that investors often find solar stocks more exciting than other types of clean energy stocks. Many of us have the option to install solar panels on our rooftops, which makes the technology more understandable and accessible. Additionally, the stocks of companies that produce solar panels are classified as semiconductor stocks, as opposed to wind power and hydroelectric, which are usually only investable via utilities.
According to the GuruFocus All-in-One Screener, a Premium feature, as of Nov. 8, the top three stocks that have thrashed the S&P 500’s returns this year are SMA Solar Technology AG (FRA:S92, Financial) (SMTGY, Financial), Enphase Energy Inc. (ENPH, Financial) and First Solar Inc. (FSLR, Financial). Let’s take a closer look at these stocks to see what has made investors so bullish on them.
SMA Solar Technology
German solar energy equipment maker SMA Solar Technology (FRA:S92, Financial) (SMTGY, Financial) has a year-to-date return of 36.54%, bringing it to a share price of $5.68 and a market cap of $1.97 billion on Nov. 8.
Unlike the other two stocks on this list, SMA Solar is an unprofitable small cap. It went public in October 2020 and is currently trading slightly above its initial public listing price. Its balance sheet is strong, with no long-term debt and a GuruFocus financial strength rating of 7 out of 10. While revenue is mostly flat, earnings per share are on a downtrend, and the operating margin is unprofitable at -5.19%.
SMA Solar is a research-first company. Right now, it is focusing more on optimizing the energy efficiency and user-friendliness of its systems and reducing the cost of solar energy systems for mass adoption instead of prioritizing profitability. This has helped it become one of the most highly regarded companies in the off-grid solar world, with one of the few off-grid inverters that has proven long-lasting durability. According to reviews, SMA Solar’s grid-tie inverters are best-in-class for areas that have full sunlight. Germany’s government aims to nearly quadruple the country’s solar energy output by 2030, which should boost SMA Solar’s business.
Enphase Energy
California-based Enphase Energy Inc. (ENPH, Financial) has seen its shares rise 50.90% year to date to a price of $280.07 and a market cap of $38.07 billion on Nov. 8.
The stock took off to new heights in 2022 after initially selling off with the broader market at the end of 2021. With an operating margin of 17.32% and a three-year revenue per share growth rate of 45%, Enphase is growing rapidly, and while earnings per share have been more volatile, bottom-line growth is still present. GuruFocus rates the company’s financial strength at 6 out of 10 on the back of a Piotroski F-Score of 4 out of 9, which indicates balance sheet stability.
To see why Enphase is so popular with investors, we need look no further than its incredible growth in recent years. The company is also good at managing its costs, which has helped keep its balance sheet strong. Looking through reviews on several solar energy system sites reveals many customers consider Enphase to be the best micro inverter supplier on the market, especially when it comes to systems in areas that have issues with shading.
First Solar
Top of the list is utility-scale solar manufacturer First Solar Inc. (FSLR, Financial). The Arizona-based company has seen shares soar 68.23% year to date to a price of $147.26 and a market cap of $15.70 billion on Nov. 8.
In a sector fraught with volatility, First Solar’s shares have been on a relatively consistent uptrend in recent years, though it has had its down moments. The operating margin of -2.43% shows the company has recently run into some profitability issues. Overall, the per-share revenue and earnings trends have been positive in recent years, with some weakness showing up beginning in 2021. The company’s balance sheet is strong, with an industry-leading cash-debt ratio of 6.15 and a GuruFocus financial strength rating of 8 out of 10.
First Solar is an industry-leading utility-scale solar manufacturer that has two new manufacturing plants under construction. The company’s thin-film panels are famous for working better than competitors in extreme weather environments such as deserts or coastlines, which is an essential quality for increasing system lifetime and reducing maintenance costs. Part of the enthusiasm for this stock also comes from the fact the company is expected to directly benefit from the Inflation Reduction Act in the U.S.
