If You Can Only Buy One Solar Stock, It Better Be One of These 3 Names

President Joe Biden’s administration continues to do everything it can to encourage American households to adopt solar energy. In June, the White House announced $7 billion in grant money for residential solar programs across the country. This is in addition to the $300 billion in tax cuts announced for clean electricity projects that include solar announced as part of the administration’s infrastructure bill. Many states are also providing incentives to encourage the transition to electricity that is generated from the sun’s rays. The government incentives make it a good time to own a solar stock like one of these.

The solar market is booming as adoption of renewable energy heats up with both commercial and residential customers. Allied Market Research estimates that the global solar energy market will grow to $300 billion by 2032 from $94.6 billion in 2022. That growth should help to drive solar stocks higher throughout the next decade, making now a great time for investors to take a position. If you can only buy one solar stock, it better be one of these three names.

Consider a Solar Stock: First Solar (FSLR)

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First Solar (NASDAQ:FSLR) is a manufacturer of solar panels that covers the entire life cycle of the product, from initial build and maintenance through to end-of-life recycling. It also provides financing services to its residential and commercial clients. Among solar energy companies, First Solar is a standout. The company’s solar stock has gained 35% this year, is up 167% throughout the last 12 months and has increased 283% through five years. If there’s a red flag with FSLR stock, it is the valuation.

Currently, the shares are trading at more than 500 times future earnings. That’s extremely high. Clearly, investors are betting that First Solar’s business will continue to grow quickly as the transition to renewable energy sources gathers steam across the United States. However, right now, new investors will pay a steep premium for FSLR stock. The share price is actually down from a peak reached in spring after the company missed on its first-quarter results, reporting earnings of 40 cents a share versus the expected 99 cents.

Sunrun (RUN)

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For more of a buy-the-dip opportunity, look to Sunrun (NASDAQ:RUN). The company specializes in the batteries and energy storage systems that are essential to the solar panel systems used with residential homes. Founded in 2007, the company is still emerging, doing about $2 billion a year in sales. While RUN stock is trading nearly 50% higher than where it was five years ago, this solar stock has a share price that is down 9% throughout the last 12 months.

Even with that drop, RUN stock is still trading at a hefty valuation, though not as steep as FSLR stock. Right now, Sunrun’s share price is trading at a price-earnings (P/E) ratio of 357, making them look expensive. The stock has been trending higher lately after the company beat consensus analyst expectations with its latest earnings, and after Morgan Stanley (NYSE:MS) raised its price target on the stock. This has maintained an “overweight” (buy) rating on RUN stock and lifting its price target to $39 from $30, implying 85% upside.

SunPower (SPWR)

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SunPower (NASDAQ:SPWR) is a solar company with a near identical business model to that of Sunrun. It makes the batteries and energy storage technology that power solar panels. However, SunPower differs in that it is an older, more mature company. Founded in 1985 by a former electrical engineering professor at Stanford University, SunPower is a long-time leader in the evolution of solar power technology. The company used to service commercial clients before moving to concentrate solely on residential homes.

This solar stock has had a bumpy ride throughout the last 12 months with its share price dropping 32%. However, long-term, the stock’s track record is better. Throughout the past five years, the share price has increased 150%. Also attractive is SunPower’s valuation, which is much lower than both First Solar and Sunrun. Right now, SPWR stock is trading at a P/E ratio of 98, which is high but not nearly as high as the other two stocks on this list. Most recently, SunPower missed analysts’ consensus forecasts for its Q1 earnings. But long-term, the stock should be alright.

On the date of publication, Joel Baglole did not have (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.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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