It may be an understatement that the stock market has seen a wild ride in 2020, with the bull market turning into a major bear market in record time. So what are investors supposed to make of the massive recovery from March’s lows, which took the Nasdaq to a new all-time high, and the Dow Jones industrials and S&P 500 have recovered the lion share of their gains?
It is impossible to ignore that the energy sector finally managed to stage a massive recovery rally. One issue that does not receive enough attention is that low oil and gas prices are also very bad for the alternative energy sector. After all, what do price comparisons look like if the cost of oil and gas go so low that things like solar, wind and so on become ever less competitive? Many of the tax credits and other incentives for alternative energy have either run out or are less than they used to be.
24/7 Wall St. has screened the universe of alternative energy stocks and identified six companies with incredible upside potential. Keep in mind that there is no free lunch, and chasing stocks after a 50%, 100% or even higher recovery since the panic-selling lows in March can be a dangerous game. The sell-off on Thursday, June 11, 2020, proves that stocks that pose great recoveries also can come with violent selling pressure on no direct news.
How these alternative energy stocks might be classified has been given some explanation. They are all riskier than traditional Dow or S&P 500 companies, and some are still not yet operating at profitability. In short, only the most aggressive investors with a high tolerance for risk and losses should be considering these companies. As an extra caveat, note that the recovery from the lows has been strong enough that even most of the aggressive investors should perhaps keep these on a watch list of sorts so that they can be purchased if they continue to sell off.
Specific recent analyst calls have been included on some of these alternative energy stocks. As with all analyst calls, there are no assurances that those analysts have any better information or ability to predict a future price than an at-home investor who knows industries well and is willing to do the research. No single analyst call should ever be used as a sole decision to buy or sell.
Here are six companies that we have classified as alternative energy players that still have very high potential upside.
Bloom Energy
After coming public in late 2018 just in time to catch the market crater in the fourth quarter of that year, Bloom Energy Corp. (NYSE: BE) has struggled. It recovered to $14 briefly in February before it was dragged all the way down to about $3 during the selling panic this year. The shares rose 22% to $10.27 one day in the week of June 12, but by mid-Thursday it was back down over 10% at $9.15 when the market was selling off.
JPMorgan recently raised its target on Bloom Energy to $17 from $14. Prior to that, Morgan Stanley had lowered its target to $20 from $21.
A clean stationary platform of solid oxide fuel cell technology for reliable and uninterruptible power is the driving force. Bloom Energy cannot only blame circumstances for its lack of enthusiasm, but this was always considered one of the future cleantech leaders prior to its initial public offering. Sales growth is expected to be low in 2020 but to be more than 25% in 2021, and it is expected to be a profitable company in 2022.
Enphase Energy
Shares of Enphase Energy Inc. (NASDAQ: ENPH) saw a sixfold rise from the start of 2019 into late summer, and after pulling back it ran even higher up to $70 or so. Now that they are back down to about $49, Enphase is still expected to show revenue and earnings growth in 2020 and in 2021 as it offers semiconductor-based microinverters for solar panels AC battery storage systems. Its market cap is also $6 billion, but earnings growth is expected to be almost 40% from 2020 to 2021, on top of better than 40% sales growth from this year into next year.
What stands out was that Barclays issued a new Overweight rating and a $67 price target on Enphase back on March 25. While newer price targets from other firms are in the $50s, that Barclays call was just two days after the bottom of the stock market. Other reports even show that Barclays has been even more bullish since.
At the end of May, JPMorgan reiterated its Overweight rating and raised its target to $67 from $54. For a less than aggressive call to add in some balance here, note that Goldman Sachs pulled the plug and downgraded it to Neutral from Buy, while still raising its target to $57 from $50 in the call.
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