The Best Buying Opportunity in Years

Sean Brodrick By Sean Brodrick,

Alternative Energy

You’ve got an amazing opportunity in front of you. A chance to buy one of the runaway industries of the decade at dirt-cheap prices.

I’m talking about renewable energy. Donald Trump’s win slammed solar and wind power. They went down far below any level that makes sense.

So why did the Trump victory hit renewables so hard? Because during his campaign, he criticized solar power programs and promised to boost oil, natural gas and coal.

This knocked solar – tracked by Guggenheim Solar ETF (NYSE: TAN) – to new lows. Wind power – tracked by First Trust ISE Global Wind Energy ETF (NYSE: FAN) – also went lower.

renewable-tank-election

Well, hang on to your sun hats. As Dave Fessler pointed out last week, a major Trump financial contributor who said he is a member of the transition team told an industry publication that “Everything with renewables continues; the credits will remain in place.”

President-elect Trump’s shifting stance on renewables makes sense. Renewables are a huge source of new jobs.

Here’s what I mean. The solar industry alone employs more than 200,000 workers across the country. What’s more, it is adding workers nearly 12 times faster than America’s overall economy is.

Wind power jobs are also soaring. U.S. wind power jobs hit a record 88,000 at the start of this year. That’s an increase of 20% year over year. And more are added all the time.

Texas leads the nation with more than 24,000 wind energy employees. Windy Oklahoma comes in second place with more than 7,000 jobs. Those are Republican states. President Trump won’t want to alienate his base.

Meanwhile, solar is strongest in the Sun Belt. That region also votes Republican. Rooftop solar has strong bipartisan support. In fact, 85% of voters support rooftop solar.

And solar and wind, along with natural gas, are the legs of the three-legged stool that is America’s energy future.

us-power-capacity

This year, through the third quarter, the U.S. wind industry installed 1,725 megawatts of wind capacity.

As for solar, third quarter numbers aren’t in yet. But the U.S. installed 2,051 megawatts of solar in the second quarter. That’s growth of 43% year over year. And that means the U.S. has a total installed solar capacity of 31.6 gigawatts.

There are three things driving all this growth.

No. 1: Tax Credits

First, there are the tax credits. Wind power has the production tax credit (PTC). Solar has its investment tax credit (ITC).

These tax incentives were extended by the Republican-controlled Congress in December 2015. And they had bipartisan support.

These will likely remain in place under the Trump administration. It’s hard to kill a tax break in Washington. Especially if the industry affected is screaming bloody murder. Remember the outrage over Mitt Romney’s 14% tax rate and the proclamation to end the tax loophole during the 2012 election that went nowhere? That’s exactly what I’m talking about.

Even if Trump didn’t want to continue these credits, the PTC expires in 2020 and the ITC will drop to 10% in 2022.

And while they exist, these tax breaks make the price of wind and solar very competitive.

No. 2: Falling Prices

But here’s the second reason solar and wind are so popular: Prices are falling fast.

In fact, according to Bloomberg data, the cost of solar with subsidies is already below the prices of coal and natural gas.

important-energy-race

Do you see that? Even without subsidies, solar is already cheaper than coal! And it’s on its way to becoming the cheapest source of energy nationwide.

So solar is already competitive. And worldwide, the average cost of electricity from solar is projected to swan-dive another 59% by 2025. That’s according to the International Renewable Energy Agency (IREA).

No. 3: Global Growth

Solar isn’t limited to just the U.S. You probably know that China is the leader in installing renewable energy. It represents 40% of global growth.

China is adding 15 GW to 20 GW in new photovoltaic power generation capacity each year. This trend is projected to last for at least another five years.

It’s not alone. Other fast-growing markets for solar are in South America, Israel, Mexico, the Philippines, Russia, South Africa, Saudi Arabia and Turkey.

Global capacity could reach 1,760 to 2,500 GW in 2030. That’s up from 227 GW in mid-2016.

Meanwhile, the price of wind power is falling fast. Offshore wind in particular fell 22% from the first half of this year to the second half. Installations are soaring. So installed wind power could reach 2,110 GW by 2030, according to the Global Wind Energy Council.

China is the leader in wind power, too. It had 33.6% of the global market at the end of last year. The U.S. is a distant second place with a 17.2% share. But other markets are opening up fast all over Latin America and Africa.

Renewable energy sources accounted for more than half of the world’s new electricity capacity last year.

Looking forward, the International Energy Agency says it expects renewable energy sources to grow 42% between 2015 and 2021. That’s 825 GW of new capacity.

Bottom line: Renewables aren’t going anywhere. Record growth may slow down under President Trump – or it may not.

Heck, what if Trump follows through on his plan to spend $500 billion on America’s infrastructure? Some of that money could be spent modernizing America’s power grid.

That, in turn, could remove constraints that have held back solar and wind power growth.

So Trump might actually help the growth of renewables.

Meanwhile, solar and wind companies are priced like they’re going out of business.

The Opportunity

Negativity in the solar and wind sectors has driven prices way, way down. Now many leading stocks are trading at very low multiples.

One big wind turbine maker is Vestas Wind Systems (OTC: VWDRY). Its price-to-earnings (P/E) ratio peaked at 105.9 in June 2014. It’s now trading at a P/E of 14.1.

Another big wind maker is Iberdrola (OTC: IBDRY). It hit a P/E high of 18.5 in November 2014. It’s now trading at a P/E of 5.2.

For solar names, the fall has been equally humbling. Canadian Solar (Nasdaq: CSIQ) hit a P/E high of 84 in March 2014. It recently traded at a P/E of 3.6.

And First Solar (Nasdaq: FSLR) is the biggest name in U.S. solar. Its P/E fell from 31.8 in April 2015 to 6.33 recently. Look at this chart of First Solar’s P/E ratio over time.

first-solar

Ouch! I think you might call that a sunburn.

Sure, these stocks may get cheaper. But look at the global trend in renewables. Some may fail, but many probably won’t get much cheaper.

There is the potential for failure. So a good way to play this is through an ETF. You won’t have single-stock risk. And when the rebound comes, you can ride it like a roaring elephant.

As I mentioned earlier, the two big renewables ETFs are the Guggenheim Solar ETF and the First Trust ISE Global Wind Energy ETF. Which one you buy depends on how you view Trump going forward.

If, despite what I said here, you think he’s going to slam the brakes on U.S. renewable energy, you should consider the wind ETF. Why? Only 13.1% of the companies it owns are in the U.S. Spain has the biggest weighting, at 22.3%, followed by the U.S., Germany (12.3%) and Denmark (11.8%).

If you believe as I do that Mr. Trump won’t have much of an impact on renewables, consider the solar ETF. A whopping 50.4% of its holdings are in the U.S. That’s followed by Hong Kong at 19.2% and China at 18.6%.

I think both funds will do well. Renewables are the global wave of the future, and an election won’t change that.

Good investing,

Sean