Friday, November 04, 2022
As recently as a few months ago, it was dark days for solar power.
According to the Solar Energy Industries Association (SEIA), forecasts for the sector were trimmed nearly in half.
Then, concerns about tariffs and lost tax credits put solar’s future in jeopardy.
But on August 16, 2022, something big happened: a new law infused $369 billion into renewable-energy efforts.
Based on all the data, the solar gold rush is now at our doorstep…
And today, I’d like to share an idea in this sector that could potentially help you strike it rich.
To kick things off, let me share some details about the new law I mentioned.
Among other objectives, it’s intended to help drive a transition to renewable energy, and reduce America’s dependence on Chinese imports.
Within this law is the Solar Energy Manufacturing for America Act. Essentially, this creates new tax credits to expand solar production. For example, anyone who installs a solar system between 2022 and 2034 will receive a tax credit of up to thirty percent.
This has altered the potential of the sector. The SEIA says the law will spur investments in production capacity across the supply chain, and create thousands of U.S. manufacturing jobs.
As investors, this is an opportunity we don’t want to pass up. The thing is, it’s impossible to know which solar company — a manufacturer, an installer, a supplier? — will come out on top.
So I’ve got a better idea:
Let’s invest in a company that makes a crucial component nearly everyone needs.
During any gold rush, there are different ways to profit.
For example, you could mine for gold. This would be the equivalent of betting it all on a single solar manufacturer or installer. Sure, it could pay off handsomely. But if that company misses the mark, you’ll go bust.
As an alternative, you could sell picks and shovels to every miner searching for gold. This is known as a “picks and shovels” strategy…
In other words, invest in a company that makes a product that everyone in the sector will need. This is a lower risk way to invest — and it still gives you the chance to strike it rich.
When it comes to solar’s “picks and shovels” opportunity, look no further than a company called Enphase Energy Inc. (ENPH).
Enphase makes “micro inverters,” a piece of technology without which, solar panels would be vastly underpowered.
You see, when sunlight hits a solar panel, light is converted into direct current (DC). Problem is, DC is useless around the house. Most appliances and gadgets need alternating current (AC).
And to convert DC into AC, solar panels need inverters.
Current inverters lack efficiency. In other words, a lot of the power generated by solar panels is lost during conversion.
Furthermore, traditional inverters are bulky and expensive. To defray their costs, many are installed at the end of a row of solar panels. But inverters are only as strong as the weakest panel. If a panel is in the shade, or is covered by a tree, it impacts the entire system.
In short, current inverters often result in higher costs and lower efficiency.
But Enphase’s micro inverters solve these problems. They’re incredibly efficient — they’re so small and affordable, they can be hooked up to individual panels. That way, they can recover as much as thirty percent of the power that a traditional inverter loses.
With a “sunny” forecast for solar power, Enphase’s sales are set to boom.
First of all, any potential competition is way behind it from a technology perspective.
Additionally, Enphase has been a stock-market outlier. The S&P 500 is down twenty percent so far this year. But Enphase’s stock is up nearly twenty percent the past three months, and up more than sixty percent for the year.
The company is also an earnings powerhouse. Over the past three years, it’s grown per-share profits by eighty-two percent. At that rate, its profits double every ten months.
And in the most recent quarter, Enphase beat sales and earnings expectations by a whopping forty-eight percent.
I’m convinced this company can double its earnings per share in as little as two years, setting us up for the potential of major gains.
Bottom line: solar power is once again a major trend…
And Enphase is a smart way to play this sector’s gold rush.
Cheers and Good Investing,
Chief Investment Officer
Trend Trader Daily