NOVA - 3 Sorry Solar Stocks to Sell Now While You Still Can: Summer Edition

2024-06-05 06:50:00 ET

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Despite potential signs of recovery in the solar space, the current economic headwinds loom over its near-term future. Hence, the discussion about solar stocks to sell still remains relevant.

The past couple of years have weighed down volumes in the solar sector, mostly due to rising interest rates. As borrowing costs rise, so does long-term solar project financing, effectively lowering future cash flows’ attractiveness.

Additionally, the recent tariff bump on imported solar cells, particularly from China, complicates things even more. Though solar companies can effectively adapt by altering their manufacturing approaches, the initial sting of these tariffs will weigh down demand while escalating costs for installers. That said, here are three solar stocks to sell that are likely to continue eroding shareholder value.

Invesco Solar ETF (TAN)

Solar energy’s clean reputation over the past several years has fueled investor enthusiasm, particularly for exchange-traded funds (ETFs) like the Invesco Solar ETF (NYSEARCA: TAN ). The ETF’s performance offers insights into the solar market’s health but also highlights the challenges confronting investors who have backed solar’s rise.

However, the past three years have been forgettable, to say the least, for TAN, with it shedding roughly 40% of its value. This downturn reflects broader concerns surrounding the sector’s viability, with investors preferring to wager in other sectors, such as nuclear energy.

Furthermore, TAN stock also falters in the dividend department, yielding just 0.10%, roughly 96% lower than the median of all ETFs.  Similarly, dividend growth rates over the past three years are at a negative 19.4% , 33% behind the median of all ETFs. On top of that, TAN stock has been incredibly volatile, with an annualized volatility of 39% , with its top ten holdings accounting for a hefty 64% of its total holdings.

Altus Power (AMPS)

Altus Power (NYSE: AMPS ) is one of the top players in solar energy generation and energy storage systems. It has grown its top line rapidly over the past five years, positioning it as a front-runner in the niche.

However, macroeconomic headwinds have weighed down its bottom line, with investors running towards the exit. Its stock is down 41% year-to-date (YTD), having shed roughly 15% in the past year. Moreover, given the choppiness in its operating environment, expect more volatility ahead.

Most recently, JPMorgan downgraded the stock from an ‘overweight’ rating to ‘neutral’ . This drop came after disappointing 2026 projections, which saw Altus unveiling three-year targets falling considerably behind Wall Street expectations. Analyst Mark Strouse detailed that though a positive M&A environment may boost medium-term goals, AMPS stock could remain in duress until there’s clarity in strategy and concrete progress is made from its ongoing internal reviews.

Sunnova Energy International (NOVA)

Sunnova Energy International (NYSE: NOVA ) is another top player in the solar energy space, offering energy management solutions, including battery storage systems for electric vehicles. It boasts a customer base of more than 438,000, operating across 50 states. Like Atlus, it has done a great job of growing its sales but has struggled on the profitability front.  However, NOVA’s bottom-line woes are more pronounced, with its 5-year net income margin at a negative 83%.

Moreover, its profitability positioning has added to its debt load, primarily from its financing arm offering customer loans. The company’s debt load is roughly 4.85 times its shareholder equity and more than 176 times its EBITDA. Consequently, analysts at Piper Sandler downgraded NOVA stock to ‘neutral’ from ‘overweight’ . Analyst Kashy Harrison cited uncertainties over the firm’s ability to generate consistent positive cash flow beyond 2024. Concerns revolve around the firm’s ability to lower costs per customer and increase per-customer asset-backed securities value in 2024.

On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines

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