Picture taken on January 23, 2015 of the newly finished PV Salvador solar plant near El Salvador, in … [+]
Energy has always been a popular sector in our annual 2022 MoneyShow Top Picks report, and consistently through the years, large cap integrated oil firms have stood as favorites. This year, however, the focus is on lesser-known, niche opportunities in natural gas, solar, hydrogen and renewable infrastructure.
Kirk Spano, Bluemound Asset Management’s Fundamental Trends
The clean energy transition is in full effect and my top alternative energy stock for 2022 is SunPower (SPWR). The company, which is majority owned by TotalEnergies (TTE) — one of the oil supermajors — sees a 10x plus total addressable market opportunity. I believe they are being conservative.
SunPower focuses on the residential and commercial solar, battery and energy management business. Their partnership with Enphase (ENPH) makes them a leader here. In the short-term, the numbers are growing with 14.3K new customers in Q3 2021 with 58k in the pipeline including multi-family.
In the short-term, the light commercial space is a massive opportunity. It is rapidly expanding and SunPower has a growing backlog of business. The simplest way to think about this market, in an era of tax incentives and an ability to lower energy costs, companies with buildings that have flat roofs or parking lots are a huge market.
The company has also been selected for the DOE’s grid services demonstration project. I expect that SunPower’s penetration into microgrids will be significant. Think industrial parks. Energy management and distribution at below utility scale is poised to grow rapidly in coming years as the grid decentralizes.
Fundamentally, the company is slightly profitable and that is improving as EBITDA improves alongside the company’s growth and declining cost structure with scale. SunPower is on the verge of free cash flow generation.
Delays brought on by Covid and some collection issues have held back broader profitability, but that should remedy soon. Cash on the balance sheet is over $500 million providing security against volatility. Analysts have been revising estimates upwards. These are the catalysts that investors should look for to generate true alpha.
Market conditions, Covid and execution risks can certainly send shares down short-term. I would view any dip in SunPower shares as an opportunity to increase holdings or scale in if you don’t own any. Millennials have taken an interest in the stock, which is very important for future share price. I have a 3–5-year price target on SunPower of $125 based on a future market cap of around $25 billion and 200 million shares outstanding.
Todd Shaver, Bull Market Report
One of the leading contenders in the energy storage space, Stem Inc. (STEM) remains largely unknown, having spent a decade as a private holding before tiptoeing onto Wall Street via SPAC last April.
We don’t mind the stealth. The company’s moment has finally arrived. Stem — a To Pick for more aggressive investors — offers proprietary AI-enabled software that it sells bundled with third-party hardware to provide what amounts to “battery as a service” to renewable power generation projects and other industrial customers.
The software is the key to efficiency, effectively creating a smarter internal grid that supports increasingly crucial applications like electric vehicle fleet charging and managing solar-powered big box stores.
With over 950 deployments so far (including 40 leading utilities), every new deployment deepens the competitive moat and tightens STEM’s grip on its market.
Word of mouth is spreading: While this is still an emerging enterprise, bookings currently run above a respectable $100 million a quarter and at this growth rate breakeven could come by the end of the year.
At that point, the world belongs to STEM . . . provided it doesn’t get bought out. With global battery storage capacity expected to rise 25 times by 2030 as $1.2 trillion in potential investments in integrated storage systems comes online, this company has massive secular tailwinds behind it. If you’re looking for a green opportunity, STEM has the potential to become something truly special.
Neil Macneale, 2-for-1 Stock Split Newsletter
Our world is changing — and one of the biggest changes is our switch from fossil fuels to renewables in all the many ways we power our transportation, our factories. One of the side effects of this change will be an adjustment in the mix of natural resources we will need to make the energy conversion a reality.
To build the millions of electric motors, charging stations, etc., that will be coming, a dependable and greatly expanded supply of copper will be right at the top of the list of natural resources needed in the very near future. Toronto-based PolyMet Mining (PLM) is perfectly positioned to take advantage of this explosion in the demand for copper.
PolyMet — a favorite speculation for the coming year — is a mine development company that owns 100% of the NorthMet Project, the first large-scale project to have received permits within the Duluth Complex in northeastern Minnesota, one of the world’s major, undeveloped mining regions.
NorthMet has significant proven and probable reserves of copper, nickel and palladium — metals vital to infrastructure improvements and global carbon reduction efforts — in addition to marketable reserves of cobalt, platinum and gold.
When operational, NorthMet will become one of the leading producers of nickel, palladium and cobalt in the U.S., providing a much needed, responsibly mined source of these critical and essential metals. Located in the Mesabi Iron Range, the project will provide economic diversity while utilizing the region’s established supplier network and skilled workforce.
PLM is currently near the bottom of its 12-month trading range. A few permitting issues remain, making this, undeniably, a very speculative stock. However, in my opinion, pressure to increase responsible domestic production of copper, both from the market and from Washington, will soon push Polymet into production and profitability.
Tom Bishop, BI Research
Ramaco (METC) has a lot of things going for it. First off it is a miner of metallurgical coal used in making steel. Car production is currently down due to the chip shortage and a recovery there should further bolster steel prices which are not far from their recent record high prices. The infrastructure bill also will help.
Meanwhile the price of met coal has recently surged along with steel prices to as high as $400 a ton at the peak. The company produced and sold 2.3 to 2.4 million tons in 2021 and is forecasting a 32% increase in 2022 to ~3.1 million tons. It has already locked in pricing on 1.67 million tons at $196/ton, fob mine — and this is double the price it locked in for 2021 amidst a dismal market at the time prices for 2021 were locked in (fall 2020) due to COVID.
Meanwhile, analysts have made a very conservative assumption for the remaining 48% of production assuming an average price of $169/ton, given prices are still way over $300 now (and have been to $415). Prices are likely to ease off some over time. But to $169 average for 2022 on the amount not locked in? Seems a bit harsh to me.
Analysts currently project EPS growing from $0.94 in 2021 to $5.18 in 2022 even despite their conservative assumptions on pricing of the coal not locked in for 2022.That’ll generate a lot of cash flow for expanding capacity. Sign of the times — the company just initiated a dividend of about 2%. There’s a lot to like here for a stock currently trading around $13 and a forward p/e of 2.5.
Brendan Coffey, SX Greentech Advisor
FuelCell Energy (FCEL) — a favorite growth pick for the coming year — has been around for more than 50 years and is one of the pioneers of commercial development of fuel cells, the battery-like generators of hydrogen-based electricity.
It’s one of about half a dozen public fuel cell makers that have been subject to a love-hate relationship in the market. Recently traders have bid down FCEL shares along with its peers as greentech growth stocks spent the past year blowing off steam.
The coming year is likely to see a new embrace of renewable energy growth shares like FCEL. That’s because hydrogen is a logical format for storing excess renewable energy generation as well as anchoring microgrids and backup power systems for utilities.
FuelCell just completed a 7.4MW project for the Long Island Power Authority and is finishing up a similarly sized power plant for a U.S. Navy sub base, part of the Pentagon’s plans to make bases more resilient under climate change.
The year ahead holds great promise: FuelCell just closed a dispute with a Korean marketing partner, Posco (PKX), that results in $60 million fuel cells orders this year while unleashing FuelCell Energy to market itself in Asia, which it hadn’t been able to do. In Korea alone, the potential is huge: the government wants more than 15GW of fuel cell capacity and 1,200 fueling stations for a hydrogen vehicle push in coming years.
FuelCell’s flavor of hydrogen cells are well-suited to transitional type hydrogen generation the market sees the most of these days, with natural gas or biogas used to manufacture hydrogen. Sales should hit more than $140 million this year, from $80 million in 2021. The company also has a $1.3 billion contracted backlog on power generation and service deals.
A potential game changer is in R&D too: FuelCell and ExxonMobil (XOM) believe with a few tweaks its fuel cells can be made to capture power plant carbon emissions in a manner vastly more efficient — both in price and power capacity — than other methods available today. A decision on undertaking a larger test project in the Netherlands will come by the third quarter.
Omar Ayales, Gold Charts R Us
NexGen Energy (NXE) is my top speculative pick for the coming year. The world’s growing need for low cost, high efficient energy coupled with a growing push towards using cleaner energy is giving uranium and uranium producers a big boost upward.
The world’s growing need for energy is not going to change anytime soon. If anything, it will increase exponentially. And although the world’s reliance on oil and coal is not going anywhere anytime soon, it’s possible new sources of energy such as uranium and natural gas will continue to eat at oil and coal’s market share.
Interestingly, the United Nations recently added uranium as a clean energy source paving the way for governments around the world to use it as a low cost, high efficient and ‘green’ energy source. It shouldn’t be a surprise that China is currently building dozens of nuclear reactors as the source of energy for new demand and growth.
NexGen Energy (NXE) is well funded Canadian company engaged in the exploration and production of uranium in the uranium rich Athabasca Basin, a world leading source of high grade uranium.
NEX has already had a great run in 2021. It rose 146% from January 1st to the peak last November. It has since pulled back 30% from the highs, giving back about 50% of the gains since the beginning of the year. However, the uranium revolution is likely to continue and could continue pushing solid producers upward. For full disclosure, I personally own positions in NXE.
Mike Cintolo, Cabot Top Ten Trader
I continue to think that energy stocks — which had been out of favor for many years and only got going in November 2020 — are in the midst of a longer-term uptrend. There are many names that look decent, but one I think will do well next year even in a modest energy environment is Diamondback Energy (FANG), whose Q3 results were amazing.
Free cash flow (cash flow less all CapEx) totaled $4 per share (~4% of the stock price), another dividend hike was announced (its third of the year; yield now 2.0%) and further debt reduction ($1.3 billion worth since March; no debt maturities for three years) occurred as output came in a bit above expectations.
But all of that pales in comparison to what’s possible in 2022 and beyond — the top brass believes it can keep output level with relatively tame CapEx (its breakeven oil price around $32!), and that should lead to ridiculous results, with nearly $13 of free cash flow per share even if oil averages $60 per barrel and natural gas averaged $3, and a ridiculous $19 per share if oil averages $80.
And shareholders will see half of whatever the total is paid back in dividends and share buybacks (with the rest slashing debt even further). And while the dividends are nice, I’m betting on is a gradual change in investor perception by big buyers. FANG certainly looks like one of the winners of the movement and I think 2022 will be fruitful.
Bob Carlson, Retirement Watch
Energy stocks had a strong finish to 2021, and most of the factors that propelled those gains continue in 2022; inflation is likely to remain high for much of 2022 and perhaps longer. Energy stocks traditionally are a good inflation hedge. In addition, capital investments in the energy sector lagged the last few years. Capital investments aren’t going to surge enough to increase supply anytime.
There are 21 stocks in the energy sector of the S&P 500. At the end of 2021, those stocks had a combined market value of about $1 trillion. That’s about a third of Apple’s (AAPL) $3 trillion market value and a little more than the 2021 increase in AAPL’s market capitalization.
Invest in energy through the Energy Select SPDR ETF (XLE)
Source: https://www.forbes.com/sites/moneyshow/2022/01/19/under-the-radar-energy-stocks-for-2022/