11 Most Undervalued Renewable Energy Stocks to Buy According to Hedge Funds
In this article, we discuss the 11 most undervalued renewable energy stocks to buy according to hedge funds. To skip the detailed analysis of the renewable energy sector, go directly to the 5 Most Undervalued Renewable Energy Stocks to Buy.
Renewable energy is the fastest-growing energy source in the world as most companies and countries around the world are targeting net zero carbon emissions by 2050. Between 2010 to 2020, renewable energy usage increased by 42% and accounted for 20 percent of utility-scale U.S. electricity generation. The Energy Information Agency (EIA) believes that in 2024, electricity usage through renewables will reach 26% in the US. Furthermore, in 2023, the International Energy Agency (IEA) predicts that global energy sector investments will be at $2.8 trillion, and nearly 61% of that total is expected to be accounted for by renewable energy sources.
The biggest economies of the world, the USA and China, have been making significant investments in the industry. In 2022, nearly half of all green energy investments were made in China. The country invested $546 billion in clean energy in 2022, surpassing the United States which made investments worth $141 billion during the same period. Moreover, the European Union recently reached a provisional deal to increase the percentage of renewable energy to 42.5% by 2030 from the current 32%. Since the Paris Agreement of 2015, investments in renewable energy have nearly tripled. Renewable energy investments are also catching pace in South Asian countries as India plans to deploy solar investments of around $25 billion between 2022 to 2027.
Challenges Faced by the Renewables Segment
Despite being the fastest-growing segment in the energy sector, installation of clean energy does have its challenges. Weather conditions and time of day significantly affect renewable energy deployment. For example, in 2023, solar energy stocks have been showing a downward trend as storms and rains have delayed solar panel installations.
In addition to that, the renewable energy infrastructure costs are quite significant even though the alternative energy usage costs have declined remarkably over the years. Nevertheless, as the technology grows, the costs might go down exponentially. A major factor behind the high costs of clean energy infrastructure is the interest rate hikes by the Federal Reserve since early 2022. The high interest rates have affected the deployment as companies mostly borrow money to cover the initial cost of installations and high interest causes an increase in expenditures.
Exelon Corporation (NASDAQ:EXC) was one of the companies that was affected by both of the above-mentioned challenges as mentioned by the Chief Financial Officer of the company, Jeanne Jone during the Q2 2023 earnings conference call:
“Earnings are lower in the second quarter relative to the same period last year, driven primarily by $0.04 of higher interest expense due to the rise in interest rates and higher levels of debt at the holding company and at some of our utilities as well as $0.03 of unfavorable weather at PECO.”
Despite the challenges faced by the renewable energy industry, it is still expected to grow at a tremendous rate and its market size is expected to reach around $2 trillion by 2030. To take advantage of this growth, investors can look towards some prominent clean energy stocks such as Tesla, Inc. (NASDAQ:TSLA), General Electric Company (NYSE:GE), and NextEra Energy, Inc. (NYSE:NEE).
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Our Methodology
After a thorough research of the renewable energy industry, we selected the stocks with the highest number of hedge fund holders in the second quarter of 2023. The hedge fund sentiment around each stock was taken from Insider Monkey's database of 910 elite hedge funds.
We only chose the stocks that have notable operations or infrastructure in the renewable energy segment and skipped the stocks whose investments in the sector are still in the initial phases.
11 Most Undervalued Renewable Energy Stocks To Buy According To Hedge Funds
11. NRG Energy, Inc. (NYSE:NRG)
Number of Hedge Fund Holders: 39
NRG Energy, Inc. (NYSE:NRG) is a Texas-based energy company that provides electric utilities to over 7 million customers in the United States. The company distributes electricity through natural gas, coal, oil, nuclear, wind, and solar power sources.
In the last three months, 3 out of 4 Wall Street analysts have maintained a Buy rating on NRG Energy, Inc. (NYSE:NRG). The average analyst price target of $44.25 suggests over 19.5% upside to its stock price on August 21. On July 20, BoFA maintained a Buy rating on the company stock and raised its price target to $46 from $43.
In the second quarter, NRG Energy, Inc. (NYSE:NRG) was owned by 39 hedge funds with a combined stake value of $1.074 billion.
Tesla, Inc. (NASDAQ:TSLA), General Electric Company (NYSE:GE), and NextEra Energy, Inc. (NYSE:NEE) are some of the most undervalued renewable energy stocks along with NRG Energy, Inc. (NYSE:NRG).
Legacy Ridge Capital made the following comment about NRG Energy, Inc. (NYSE:NRG) in its Q4 2022 investor letter:
“NRG Energy, Inc. (NYSE:NRG) was covered in the 2019 letter with VST. We sold the shares as COVID induced volatility presented better risk/reward opportunities, but never subsequently repurchased shares—as we did with VST. Not only do we think VST is a better value, but the management team at NRG appears to have gone astray. Despite coming to his position during an activist campaign by Elliott Management in 2017, when the prior empire-building CEO was shown the door, the replacement CEO has seemingly embarked on the same failed strategy. In early December they announced the purchase of Vivint Smart Home, a smart home platform company, for $2.8 billion. The transaction diversifies NRG’s business, increases leverage, dramatically reduces intermediate-term shareholder capital returns, and most importantly, is the opposite of what management told us they were going to do when they assumed the role in 2017. The stock fell 15% on the day of the announcement and is down another 5% since then, and now 10% lower than when we first wrote about it. We like the generation business at NRG and the valuation is almost back to interesting, but we’d probably have to see turnover in the C-suite and a refreshed corporate strategy to reignite our enthusiasm.”
10. SolarEdge Technologies, Inc. (NASDAQ:SEDG)
Number of Hedge Fund Holders: 43
SolarEdge Technologies, Inc. (NASDAQ:SEDG) is a renewable energy company that develops DC-optimized inverter systems for solar power technology. The company is headquartered in Israel and operates globally.
SolarEdge Technologies, Inc. (NASDAQ:SEDG)’s stock was owned by 43 hedge funds in the second quarter of 2023, compared to 42 in the previous quarter. D E Shaw increased its stake in the company by 68% in Q2 and remained the largest stakeholder for the second quarter in a row. The firm owned 1.5 million shares of SolarEdge Technologies, Inc. (NASDAQ:SEDG) worth $404.651 million.
In the last three months, 13 out of 16 Wall Street analysts have kept a Buy or Overweight rating on SolarEdge Technologies, Inc. (NASDAQ:SEDG) stock. The average analyst target for the company is $310.06, compared to the stock price of $163 at the August 21 market close.
9. Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders: 43
Shell plc (NYSE:SHEL) is a British integrated oil and gas company. It also has significant operations in renewable energy such as hydrogen and biofuels. The company also has investments in electric vehicle charging infrastructure. Shell plc (NYSE:SHEL) is targeting to reduce half of its greenhouse gas emissions by 2050.
On July 27, Shell plc (NYSE:SHEL) increased its quarterly dividend per American Depository Share by 15% to $0.662. The dividend will be payable by September 18 to the shareholders of record on August 11. On top of that, Shell plc (NYSE:SHEL) also authorized a $3 billion share repurchase program on the same day.
Third Point Management made the following comment about Shell plc (NYSE:SHEL) in its second quarter 2023 investor letter:
“We initiated a position in Shell plc (NYSE:SHEL) in the summer of 2021 and highlighted the company’s significant discount to intrinsic value as well as to US-listed peers after decades of poor performance. While shares have performed well since we initiated the investment, the company still trades at staggering discount to intrinsic value and represents a compelling investment at current levels. We initially argued (and still believe) that the fastest path to improved performance and better valuation would be a separation of Shell’s business units to better attract shareholders and improve accountability, the latter of which was essential when the company was in the hands of executives who had demonstrated virtually no focus on shareholder value creation.
The most important change at Shell over the past two years has been the upgrade in the management team, with the appointments of Wael Sawan as CEO and Sinead Gorman as CFO. They have demonstrated an unwavering commitment to shareholder value, capital discipline, and improved returns. At their recent analyst day, Mr. Sawan stated “underpinning all that we do will be a ruthless focus on performance, discipline, and simplification.” It was the third time they used the term “ruthless” in their presentation, sending a strong message to shareholders…” (Click here to read the full text)
8. Constellation Energy Corporation (NASDAQ:CEG)
Number of Hedge Fund Holders: 46
Constellation Energy Corporation (NASDAQ:CEG) is an American company that provides electric power, natural gas, and energy management services in the United States. It provides utilities to its customers through fossil fuels, nuclear energy, and renewables. Constellation Energy Corporation (NASDAQ:CEG) was founded in 1999 and is headquartered in Baltimore, Maryland.
On August 3, Constellation Energy Corporation (NASDAQ:CEG) posted strong Q2 results with a GAAP EPS of $2.56, outperforming the estimates by a huge margin of $1.94. Its revenue of $5.45 billion exceeded the forecasts by $900 million. The company’s stock closed at $101.14 on the day, registering a 5.85% increase from the August 2 close. Constellation Energy Corporation (NASDAQ:CEG) closed at its all-time high of $107 on August 14.
Constellation Energy Corporation (NASDAQ:CEG) stock was owned by 46 hedge funds in Q2 2023, at a combined value of $1.85 billion.
Alger Capital made the following comment about Constellation Energy Corporation (NASDAQ:CEG) in its Q3 2022 investor letter:
“Constellation Energy Corporation (NASDAQ:CEG) is America’s leading clean energy company, based on carbon-free production. The company is the largest supplier of clean energy and sustainable solutions to homes, businesses, governments, community aggregations, and a range of wholesale customers (such as municipalities, cooperatives, and other end markets) across the continental U.S., backed by approximately 32,400 megawatts of generating capacity consisting of nuclear, wind, solar, natural gas and hydroelectric assets. Constellation produces nearly 10% of the nation’s carbon-free energy.
Shares outperformed during the third quarter primarily due to the Inflation Reduction Act (IRA). Signed into law in august, the bill provides a nuclear production tax credit of approximately $43.75 per megawatt hour of energy generated. This credit favorably impacted earnings, resulting in an increase in Constellation’s share price.”
7. Vistra Corp. (NYSE:VST)
Number of Hedge Fund Holders: 48
Vistra Corp. (NYSE:VST) is a Texas-based electricity and power generation company. It owns the world’s largest battery energy storage system at its Moss Landing Power Plant project in California. Additionally, Vistra Corp. (NYSE:VST) provides electricity through several sources, including solar, wind, nuclear, and natural gas.
Vistra Corp. (NYSE:VST)’s stock was a part of 48 investment portfolios in Q2 2023 and their total stake was valued at $1.58 billion. In the previous quarter, it was owned by 46 hedge funds with a total stake value of $1.51 billion. Oaktree Capital Management held the largest stake in the company with 17 million shares worth $446.25 million.
Vistra Corp. (NYSE:VST) declared a quarterly dividend of $0.206 per share, compared to the previous $0.204. It is payable by September 29 to the shareholders of record on September 20. The company has raised its dividend for the last four years and has a yield of 2.75% as of August 21.
Legacy Ridge Capital made the following comment about Vistra Corp. (NYSE:VST) in its Q4 2022 investor letter:
“I sent the 2019 letter on February 10, 2020. Vistra Corp. (NYSE:VST) closed that day at $22.27. As I write in early January the price is $22.30. Now I did say “We would actually prefer it if both (VST & NRG) securities went nowhere for as long possible”—assuming repurchased shares at depressed valuations was our best-case scenario. But A) I didn’t think I’d be that right with respect to “nowhere”, and B) I certainly didn’t think I’d be right 3-years on. Here we are though, with the stock literally going nowhere for the last 3-years. Just like we drew it up!
“Management has indeed repurchased 20.3% of the shares outstanding since year-end 2019 and will probably repurchase another 12-15% of the outstanding shares in 2023. My initial assumption was that management could plausibly repurchase 60% of their shares by 2030, leaving them with 200mn outstanding (that assumed shares were appreciating and they had to pay more as the years went on, not what’s transpired so far), but at the current pace of about 50mn shares repurchased per year, they’ll hit that mark by the end of 2026, which would imply free cash flow of $10 pershare if the underlying business continues to perform as it currently is. That’s a 45% FCF yield on today’s price. Meanwhile, dividends per share have grown 54% since 2019 and the stock now yields 3.5%, growing about 15% a year.
Being paid to wait makes waiting much easier. We had sold VST shares in mid-2020, replacing some of the position with call options, to free up capital for other opportunities that became available. But when winter storm Uri hit Texas in February 2021 and VST shares went down 20%+, below $17 a share, we rebuilt our common equity position. Today VST oscillates between the biggest and second biggest position in the fund, depending on weekly performance.”
6. Enphase Energy, Inc. (NASDAQ:ENPH)
Number of Hedge Fund Holders: 50
Enphase Energy, Inc. (NASDAQ:ENPH) provides solar power solutions, battery energy storage solutions, and EV charging stations. The company focuses primarily on residential customers. Enphase Energy, Inc. (NASDAQ:ENPH) is headquartered in California and serves over 140 countries. With 50 hedge funds holding a stake in the company, it is our 6th most undervalued renewable energy stock to buy according to hedge funds.
Enphase Energy, Inc. (NASDAQ:ENPH) has been covered by 24 analysts in the last three months according to Tipranks. 17 of those analysts are bullish on the company stock and the average price target of all the analysts is $199.86, showing a 53.55% upside to its stock price of $130.16 on August 21. Enphase Energy, Inc. (NASDAQ:ENPH) is one of the most undervalued technology stocks according to Wall Street analysts.
Enphase Energy, Inc. (NASDAQ:ENPH) joins the likes of Tesla, Inc. (NASDAQ:TSLA), General Electric Company (NYSE:GE), and NextEra Energy, Inc. (NYSE:NEE) in our list of most undervalued renewable energy stocks.
Aristotle Atlantic Partners, LLC made the following comment about Enphase Energy, Inc. (NASDAQ:ENPH) in its Q1 2023 investor letter:
“Enphase Energy, Inc. (NASDAQ:ENPH) designs, develops, manufactures and sells home energy solutions in the U.S. and internationally for the solar industry. The company is the world’s leading manufacturer of microinverters that convert solar-generated D.C. energy to A.C. energy usable in homes and buildings. Enphase introduced the world’s first microinverter system in 2008 and has expanded its offerings to include battery storage systems and proprietary technologies that provide energy monitoring and control services for solar energy systems. It sells its products and solutions directly to solar system distributors, large installers and strategic partners.
We see Enphase having a substantial market share that is gained through a premium product offering, superior customer service and the development of a large and diverse network of solar installers and distributors. The company’s products and services address a growing residential solar market. Coupling battery backup systems with existing and newly installed residential solar systems could accelerate the company’s revenue and earnings growth over the next several years, in our view. Additionally, commercial and international expansion offer additional revenue and earnings upside. Enphase also plans to expand manufacturing capacity in the U.S. during 2023 to benefit from tax incentives related to domestic production included in the Inflation Reduction Act (IRA).”
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Disclosure. None. 11 Most Undervalued Renewable Energy Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.