Hot investment themes change with time and prevailing macroeconomic conditions globally. However, some sectors will likely remain in the limelight through the decade. One such sector is alternative or renewable energy. That implies alternative energy stocks will be potential value creators in the coming years.
It’s worth noting that the world faces challenges related to global warming, uncertain weather conditions and food shortages. Among the various solutions to tackle a major crisis is the adoption of alternative energy. Therefore, investments in the renewable sector will remain high, coupled with favorable government policies.
To put things into perspective, clean energy investments must reach $4.5 trillion annually by 2030 to limit global warming to 1.5 degrees Celsius. Clearly, alternative energy stocks are hot investment themes and include potential multibagger names.
Let’s discuss three alternative energy stocks representing companies investing in a greener future.
First Solar (FSLR)
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It’s been a relatively weak year for solar energy stocks on the back of challenging macroeconomic conditions. However, First Solar (NASDAQ:FSLR) stock has trended higher by 18%. At a forward price-earnings ratio of 22, FSLR stock looks attractive and poised for a rally. Further, considering the expansion plans and backlog, I am bullish on the stock for the long term.
To elaborate, First Solar reported total bookings of 81.8 GW through 2030. The company also has booking opportunities of 65.9 GW. With the order intake remaining strong, revenue and cash flow visibility is robust.
First Solar is also on a production expansion spree. The facility in India will likely commence deliveries from January 2024. Further, Alabama and Louisiana facilities will be completed in 2024 and 2025, respectively. New facilities will help in scaling deliveries.
From a financial perspective, First Solar reported a net cash balance of $1.3 billion as of Q3 2023. I don’t see financing growth as a challenge. It’s also worth mentioning that the company is setting up a research and development facility in Ohio. A focus on innovative solar products and solutions will help maintain growth.
Rio Tinto (RIO)
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This might come as a surprise that I am talking about Rio Tinto (NYSE:RIO) among alternative energy stocks. There are two primary reasons for this inclusion.
First, industrial commodities are the most undervalued asset class, and RIO stock trades at a forward price-earnings ratio of 10. Further, the stock offers a dividend yield of 4.77%. I am bullish on high total returns from RIO stock in the next few years.
Further, Rio Tinto is primarily in the business of iron ore. However, with a global focus on renewable energy, the company is investing in metals likely to support the global energy transition. That includes the likes of copper, lithium, aluminum, scandium and titanium dioxide.
Recently, Rio Tinto and cable solution provider Prysmian (OTCMKTS:PRYMY) have entered into an agreement where Rio will supply low-carbon aluminum made with renewable hydropower. Similarly, Rio will likely be the largest source of lithium supply in Europe for at least the next 15 years. With strong fundamentals, the company has the financial flexibility to invest in metals supporting the energy transition.
Air Products and Chemicals (APD)
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Air Products and Chemicals (NYSE:APD) stock has been sideways in the last six months. This is a good time to accumulate with the stock, trading at an attractive forward price-earnings ratio of 21.
For FY 2023, revenue was flat on a year-on-year basis. However, adjusted EBITDA and EPS increased by 11% and 12%, respectively. That was particularly due to higher price realization and a sales volume increase. I believe the company will continue to deliver strong results as it enters into low-carbon hydrogen and ammonia production.
With a focus on renewable energy, the company expects to invest approximately $15 billion in clean hydrogen projects. One such project is the Louisiana project, expected to produce low-carbon hydrogen and ammonia. Considering the scale of the project, the company expects to generate an internal rate of return greater than 10%.
Moreover, Air Products also started Europe’s largest hydrogen plant in the Netherlands. The project has a long-term off-take agreement with ExxonMobil (NYSE:XOM), which provides cash flow visibility. I believe that strong support from the government will help Air Products and Chemicals expand considerably in Europe, providing an opportunity for accelerated growth.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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