• The shift in energy policy should support the alternative energy producers

• The infrastructure package has lots of clean energy components

• Enphase Energy (ENPH) produces power from the sun- A pullback in the shares and an impressive earning record

• SunPower (SPWR) looks similar

• Buy alternative energy on dips

Sector rotation in energy stocks has taken prices of traditional energy-producing companies appreciably higher since they established a higher low in late October 2020. 

Source: Barchart

In March 2020, the S&P 500 Energy Sector Select SPDR (XLE) reach rock bottom at $22.88 as the oil price was on its way to below zero last April. The XLE holds shares in the leading traditional US-based multinational oil and gas companies. Other top world producer’s shares fell to multi-year or all-time lows during the pandemic-induced price carnage in the energy sector. In late October, the XLE reached a higher low at $26.98. Since then, it has recovered, making higher lows and higher highs. At over the $48 level at the end of last week, this could be the perfect time to move from traditional to alternative energy investments. Enphase Energy (ENPH) and SunPower (SPWR) process the sun’s energy to power the world rather than extracting hydrocarbons from the earth’s crust.

The shift in energy policy should support the alternative energy producers

The Trump administration followed a drill-baby-drill and frack-baby-frack approach to US energy production. The 2020 election was, among many other things, a referendum on US energy policy for the coming years. President Joe Biden ran on a platform that pledged to address climate change. On his first day in the Oval Office, he canceled the Keystone XL pipeline program. Fracking for crude oil and natural gas is another of the administration’s targets as the US shifts from reliance on fossil fuels to alternative energy sources.

Crude oil and natural gas production are likely to fall under a far stricter regulatory environment over the coming years. The sun is one of the sources that will provide power to the US.

The infrastructure package has lots of clean energy components

On March 31, 2021, President Biden rolled out his infrastructure rebuilding package. The $2+ trillion initiative will provide lots of funding for clean energy. The “American Jobs Plan” package calls for $174 billion in spending to boost the electric vehicle market to shift energy consumption away from gasoline-powered automobiles. The program also allows for $100 billion to update the US electric grid to make it more resilient to climate disasters like the recent winter storm that caused blackouts in Texas. A new “Electric Efficiency and Clean Electricity Standard” will mandates that a portion of US electricity come from zero-carbon sources like wind and solar power.

Enphase Energy (ENPH) and SunPower Corporation (SPWR) are two companies that deliver solar energy solutions and stand to benefit from Washington DC’s new regime with an energy policy that favors alternative sources.

Enphase Energy (ENPH) produces power from the sun- A pullback in the shares and an impressive earning record

Enphase Energy (ENPH) is both an energy and a technology company. ENPH and its subsidiaries designs, develops, manufactures, and sells home solutions for the solar photovoltaic industry in the US and worldwide. ENPH’s semiconductor-based microinverter converts energy at the individual solar module level and combines it with proprietary networking and software technologies to provide monitoring and control services. The company also sells AC battery storage systems, Envoy communications gateway, and Enlighten cloud-based monitoring service, and other products. ENPH is a pick-and-shovel energy and technology company that harnesses the sun to power people’s lives.

At the $151.35 per share level, ENPH’s market cap was roughly $20.5 billion. An average of over 3.4 million shares changes hands each day.

Source: Yahoo Finance

The chart shows that ENPH has reported positive EPS and beat analysts’ forecasts over the past four consecutive quarters. The company will report Q1 2021 earnings in early May, with the market expecting a 44 cents per share profit.

Source: Yahoo Finance

The revenue and earnings trend from 2017 through 2020 have been growing at an impressive pace. A survey of sixteen analysts in Yahoo Finance has an average price target of $214 for ENPH shares, with estimates ranging from $99 to $264.

Source: Barchart

The chart shows that ENPH shares rose to a record high of $229.04 in February 2021 and pulled back to below the $151.35 level at the end of last week.

SunPower (SPWR) looks similar

SunPower Corporation (SPWR) delivers global solar energy solutions. The company designs and manufactures high-efficiency silicon solar cells and solar panels based on an all-back contact cell design. The solar cells and panels generate electricity from sunlight for residential, commercial, and remote power applications. The company claims its’ all back contact silicon solar cell technology produces more power per square foot than conventional solar cells, increasing customers’ efficiency.

SPWR’s shares were trading at the $29.71 level at the end of last week. The company has a $5.118 billion market cap and trades an average of over 7.55 million shares each day.

Source: Yahoo Finance

While the company has not reported positive EPS over the past four quarters, it has beat analyst estimates each quarter. SPWR will report Q1 2021 earnings in early May. The current consensus forecast is for flat EPS in Q1. 

Source: Yahoo Finance

While the trend in revenues has been negative over the past years, earnings have been trending higher.

Source: Barchart

SPWR shares reached an all-time high in 2007 at $164.49. The stock dropped to a low of $4.03 in March 2020 and recovered to a lower high of $57.52 in January 2021. SPWR was trading at the $29.71 level on April 9.

Buy alternative energy on dips

President Biden’s $2+ trillion infrastructure rebuilding program contains lots of funding for clean energy solutions. ENPH and SPWR shares have declined from higher levels earlier this year. Buying alternative and clean energy companies on price weakness could be the optimal approach for the companies that harness the sun’s power and use technology to deliver energy solutions in the US and worldwide.

ENPH and SPWR are companies with critical mass and proprietary technologies to survive and thrive. Support from US energy policy could turbocharge gains over the coming months and years.

ENPH shares rose $0.13 (+0.09%) in premarket trading Tuesday. Year-to-date, ENPH has declined -13.38%, versus a 10.50% rise in the benchmark S&P 500 index during the same period.

About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles. More...

More Resources for the Stocks in this Article