Penny Stocks in the Clean Energy Sector with a Lot of Room for Growth
Last year, renewable energy equities were THE trend, with the clean energy fund returning 177 percent. These stocks are on sale again after a large dip in February, and I’ll show you how to get in on the best possibilities, including the top five renewable energy penny stocks, to take advantage of the bounce. Today on Let’s Talk Money, we’re talking about green energy.
The value of the Clean Energy Stocks Fund has decreased, Since February 2021
Clean energy was the unquestioned stock market champion last year, with the First Trust Green Energy Index Fund (ticker QCLN) recording a 214 percent return through January of this year. Renewable energy companies outperformed electric automobiles, self-driving cars, and even the Ark Innovation ETF, which returned 170 percent!
But, wow, does a month make a difference! Since early February, the same clean energy equities have dropped 24%, wiping off a fourth of the fund’s value!
We’ve spoken about clean energy stocks previously on the channel, and I still believe it’ll be one of the most important themes in the next decade.
Biden is a strong supporter of renewable energy.
The cancellation of the Keystone XL project was one of President Biden’s first official acts on the day he was inaugurated, and the Administration’s campaign for green energy will be a major aspect of the administration. Clean technology is at the heart of Biden’s $2 trillion infrastructure plan, and he’s laid out nine stages to get clean energy.
Clean energy technology is becoming more affordable, energy demand is increasing exponentially, and a 51 percent spike in the price of oil and other energy prices over the previous three months has refocused attention on alternative fuels.
In fact, the only thing that has changed in the previous month is that these stocks are now trading at a discount, allowing you to get in on this theme a second time!
In this video, I’ll explain why clean energy stocks have been falling recently, why the sector is poised for a comeback, and which five green energy penny stocks I’m watching right now.
Why Did Clean Energy Stocks Decline?
The reason why clean energy stocks have dropped so much recently is actually quite straightforward, but it has no bearing on their long-term prospects. Interest rates on the ten-year Treasury have nearly doubled in only three months, rising from 0.95 percent to over 1.7 percent lately.
The issue is with how a company is valued at its most fundamental level: how much future cash flows are worth to an investor now. I don’t want to get too far into this since I want to get to those five clean energy penny stocks as soon as possible. I’ll include a link in the video description that goes into further depth, emphasises how much farther equities might go, and my investment approach.
How to Determine the Value of a Stock
To determine how much a stock is worth, or its fundamental value, you sum up all of the predicted future cash flows and discount them using an interest rate. As the interest rate rises, you’re deducting more from future earnings, causing the stock price to decline. Because these green energy firms have so much future cash flow potential, they have plummeted more than other companies as interest rates have risen.
But none of this has any bearing on renewable energy or these firms’ prospects. According to Allied Industry Research, the worldwide renewable energy market might expand from $928 billion in 2017 to $1.5 trillion by 2025. According to the US Energy Information Administration, renewable energy consumption in the United States will reach 13.4 quadrillion BTUs by next year, up 17% from 2019.
Stocks in the clean energy sector are gaining traction.
The transition to sustainable energy is already irreversible, and with the United States rejoining the Paris Climate Accords, it will only accelerate!
I want to start with a handful of funds to add to the portfolio anytime we invest in these major multi-year themes, such as EV stocks or biotech or clean energy. And there are two reasons for this.
First, we want broad exposure because the topic we’re looking at will benefit from those broad trends. Investing a portion of your money in a clean energy fund will provide you with exposure to the entire group as well as a number of stocks that may not be available in your local stock market.
These funds are also good places to start looking for individual equities in the renewables sector. You may receive a list of clean energy stocks to investigate by going to any ETF website and clicking on the Holdings link in the menu.
The First Trust Clean Edge Green Energy Fund (ticker: QCLN) is one of the largest. The ETF owns 44 firms in the solar, biofuels, and advanced battery industries. The stock gained 183 percent the previous year, with a 16 percent average return over the last decade.
And you can see the diversity here, with a third of the fund invested in equipment suppliers, 15% in vehicles, and 15% in alternative energy, but exposure to ten industries overall. Here are the top stocks owned, with Tesla leading the charge with 9% of assets, but there are some good green energy stocks here, like Plug Power, which we suggested in a video back in September, and Albermarle, which we suggested in January of last year.
The fund is a touch pricey, with an annual cost ratio of 0.6 percent, but that’s to be expected with this type of theme investing. You won’t get the same 0.2 percent cost ratio that index funds have.
If you’re looking for a more targeted investment, the Invesco Solar ETF (ticker: TAN) owns 37 solar energy equities and returned 233 percent last year.
The fund is mostly invested in technology firms, but it also owns a third of its holdings in utility businesses. With little under half of the equities located in the United States, but exposure to Asian and European firms as well, the solar ETF is a little more regionally diversified.
You’ll see some similarities with that clean energy fund, such as Enphase and First Solar, if you look at the solar stocks owned. You also have a good mix of firms that aren’t traded on the US or Canadian markets, making it a good method to invest in solar abroad.
So I like both of those clean energy funds, but I want to emphasise the potential upside that can only be obtained by selecting the finest companies in the group, not just any stock, but the finest penny companies.
When the price is right, buy these 5 unstoppable clean energy penny stocks.
Uranium Energy Corp (ticker: UEC), a $620 million uranium exploration and processor for nuclear energy, is our first green penny stock.
In a recent video about the tremendous buildout of nuclear reactors and the rise in pricing, I mentioned uranium. The price of uranium has increased by more than 70% from its low in 2016, and the building of 53 new reactors throughout the world is expected to keep this trend going for years.
UEC is a pre-production miner with three projects in the United States, an interest in the Athabasca Basin in Canada, and a portfolio of properties in Paraguay, with the potential to produce up to four million pounds per year.
The company’s projects are fully permitted, with a potential production profile of four million pounds of uranium per year from areas in Texas and Wyoming. With approximately 26 million pounds of measured and indicated resources, the Reno Creek project is the biggest permitted uranium project in the United States under pre-construction.
UEC has launched a physical uranium effort, purchasing drummed uranium at spot prices but below industry mining costs, and now has over 1.4 million pounds of uranium in storage. The company’s Hobson processing plant in Texas has a processing capacity of two million pounds per year and benefits from its closeness to the local mines for a significant cost advantage.
With $95 million in cash and investments on the balance sheet and only $10 million in debt, the business has plenty of financial flexibility to put these assets into production. In the video description, I’ll include a link to the company’s entire investor presentation.
ElectraMeccanica Vehicles, ticker SOLO, is a Canadian electric vehicle manufacturer with a unique twist. Its main product is a three-wheeled electric automobile with a single seat.
This is an underserved area of the electric industry, with a lot of promise in the personal daily usage market. The automobile has a 100-mile range on a single charge and can be completely charged in less than four hours, which is half the time it takes to charge a typical electric vehicle. The automobile has a max speed of 80 miles per hour and costs $18,500 apiece.
Production began in August of last year, with a capacity of 20,000 units per year. They now have ten retail locations in California, Arizona, and Oregon, with ambitions to grow across the West Coast and into Colorado. Another company with a strong financial sheet, this one with $101 million in cash and no debt.
Fuel Tech, ticker FTEK, is a superb penny stock bet in pollution management and one of the smallest firms on the list. It’s worth $91 million.
Fuel Tech creates multi-pollutant emission control systems for use in industrial plants and utilities. With 95 percent of the worldwide population living in places identified as having inadequate air quality by the World Health Organization, the market for pollution systems is predicted to reach $101 billion by 2027, up from $67 billion in 2019.
The pollution control sector and a chemical technologies section, which enhances boiler efficiency in coal, oil, biomass, and solid waste boilers, share revenue equally.
Customers include utilities like FirstEnergy and Duke, industrial users like Dow and BP, and worldwide producers, with over 1,200 control systems deployed internationally.
The pandemic did not meet its sales targets for 2020, but it has refocused with a better cost structure and expects more sales this year.
Next, $865 million American Battery Metals, symbol ABML, is possibly the riskiest penny stock in the bunch, while being the largest.
The firm is a lithium pre-production miner, and unless you’ve been living under a rock, you’re aware that lithium is the metal of choice in the tech world right now. Lithium demand for electric vehicles, cell phones, and energy storage is predicted to rise at a 40% annual rate until 2025.
The business owns 26,000 acres in Nevada and has 1,300 claims surrounding the Railroad Valley lithium project, with preliminary surveys indicating economic concentrations throughout.
This is a pre-production corporation, therefore there are no revenues yet, and geologic studies and permitting must yet be completed. Lithium is in high demand; all the corporation needs to do now is get it out of the ground.
Next on our list of clean energy penny stocks is $296 million Beam Global, symbol BEEM. I know you’re thinking this isn’t a penny stock because of the $37 price per share, but remember, penny stocks are defined by the size of the firm, not the price per share. Beam has a market capitalization of less than $300 million, putting it in the bottom third of companies listed on U.S. exchanges and giving it the penny stock growth potential we’re searching for. For example, if the firm were to develop to the scale of Enphase Energy, which is valued at $20 billion, investors would receive a 6,800 percent return.
Beam manufactures infrastructure goods for electricity, such as electric vehicle charging stations and outdoor media. It has already patented two electric car chargers and is working on two additional devices, including a drone charger.
Bloomberg estimates that 559 million electric vehicles will be on the road by 2040, but charging infrastructure will be a major barrier. We just don’t have enough chargers to keep up with the demand.
Hundreds of Beam products are already in use across the United States, with clients including the Department of Energy, McDonald’s, and General Motors. It holds patents in the United States, China, and the European Union.
It has a clean financial sheet, with $12.3 million in cash and no debt, and annual revenues of $4.5 million.
Some of these clean energy stocks are 20% to 30% off recent highs and trading at a discount to usual PE ratios due to increasing interest rates. This might be your final chance to acquire the top green energy stocks before they go up in price.