The energy opportunity
Consumers look to solar with storage solutions to guarantee dependability of electricity.
Enphase Energy and SolarEdge Technologies are two stocks that Goldman recommends for gaining exposure to the energy storage market, and both have a buy rating.
The latter manufactures microinverters, a type of specialized inverter, and has also made inroads into the energy storage market. According to Goldman, Enphase’s battery revenue increased 33 percent quarter over quarter in the first quarter of 2021, driven by a 31 percent increase in shipments.
SolarEdge currently sells an inverter with a third-party battery from Tesla or LG Chem, but the company is developing its own residential battery that will be manufactured in-house.
“Management has noted that meaningful revenue from the new battery product is expected to begin in 3Q21, and that the company expects over $100mm in battery storage revenue in 2021, which we note would represent more than 6% of our total modeled revenue estimates for the company,” the firm said.
Goldman expects SolarEdge to rise more than 10% to $290 in the next year.
Analysts led by Brian Lee also see potential for residential home installers Sunrun and Sunnova, as the two companies offer storage options in addition to installing rooftop panels.
Sunrun expects installations of its Brightbox system to more than double year over year in 2021, according to Goldman. Over the last year, the company has expanded the product’s footprint, and it is now available in 21 states and territories, up from 12 a year ago. In May the firm called Sunrun, which is the largest U.S. residential solar installer, a “bellwether,” arguing that shares can jump more than 30% to $69.
Sunnova predicted that battery attachment rates — the number of residential solar customers who choose storage — would “climb rapidly in 2021,” with the company having enough supply to meet demand. Goldman has a $57 price target on the stock, implying a 60% increase from Thursday’s closing price.
Energy stocks are bullish predicting a recovery in oil
The six months to 2021 have elapsed, and energy stocks are already on pace for their best year in more than three decades.
Krinsky is among those who believe the recent rally in crude oil and energy stocks has been overdone, and he advises investors to sell crude oil and energy stocks in general. Technically, he noted that the $420 to $450 level served as support — a floor — for the group over the last decade. During the Covid sell-off, however, the sector fell below that critical level, breaking below $200, as the pandemic ground economies around the world to a halt.
Since then, the S&P Energy Sector has recovered and traded as high as $420 on Thursday, inching closer to their previous support level, which now acts as resistance, or where an uptrend could be expected to reverse.
“When you break a very important support like that, it’s often difficult to exceed that — at least on the first try,” Krinsky observed.
Although judging performance from January 1 may appear arbitrary, he added that the sector’s outperformance is noticeable from virtually any date. Over the last eight months, the group has returned more than 90%, which Krinsky claims is more than twice the previous highest such gain in the last three decades.
“Even on a rolling basis,” he said, “this is somewhat unprecedented.” His bearish outlook on the sector is also influenced by the collapse of other commodities, such as lumber and copper. The latter is currently breaking its uptrend, and Krinsky noted that copper was a leading indicator for the 2020 low, reaching a bottom one month ahead of West Texas Intermediate Crude futures.
Marathon Oil has gained nearly 93 percent this year, making it the best-performing energy stock in the S&P 500.
Diamondback Energy is up about 80% year to date, and Devon Energy is up more than 70%. Occidental and EOG Resources have increased by more than 60%.
Despite the outperformance, the group remains unloved by Wall Street, as factors such as environmental, social, and corporate governance investing cause investors to avoid the sector. According to Bank of America, the entire sector accounts for only 2% of the average long-only portfolio, or less than half of the allocation to Facebook, which is 4.2 percent.
Energy still accounts for a small portion of the S&P 500, but as the sector’s weighting grows, fund managers who avoid it risk missing out on returns.
MRB Partners reiterated its overweight rating on the group on Thursday, stating that the recovery in demand for petroleum products, combined with ongoing supply constraints, should drive up oil prices, resulting in additional returns for energy stocks.
In a note to clients, strategists led by Salvatore Ruscitti wrote, “Strengthening cash flows, leaner cost structures, and improved capital discipline position the industry to moderately increase capital returns to shareholders.” “The reflationary backdrop and our expectations for a weaker US dollar will benefit relative performance.”
When it comes to specific stocks, Gilman Hill Asset Management CEO Jenny Harrington owns Chevron, Oneok, and Kinder Morgan, among others. She stated on Thursday’s “Halftime Report” that it is critical to consider the big picture. While oil is at its highest level in nearly two and a half years, it is trading at roughly half the price it was a few years ago. On the other hand, it is significantly higher than it was in June 2020, when the pandemic began.
“They’re all trading at a fraction of the market multiple,” Harrington said of her energy holdings. “They all have hefty dividend yields,” she added, arguing that “there’s a lot of room to go here” due to strong earnings growth.
2021 is a bull market
According to Ned Davis Research, global equities will gather throughout the rest of 2021 as the economic recovery increases.
The company entered overweight stocks and underweight bonds in 2021, experts said this week in a research report. This may continue, even though they are watchful for indications of excessive confidence that may lead to complacency and “deceive” global markets.
This year, earnings results were increasingly slowing expectations, but this trend may start slowing. Nevertheless, rather than a double digit bear market, the company anticipates setbacks in a single digit.
The firm forecasts global growth of 6.1 percent, with the services sector leading the recovery, and that short-term price increases will be temporary.
According to Ned Davis Research, the Covid pandemic remains the greatest risk to the country’s economic outlook, exacerbated by people’s reluctance to get the vaccine, the slow rollout in emerging economies, and the risk of removing monetary and fiscal stimulus too soon. Earlier this week, the Federal Reserve announced that interest rates would remain unchanged, that inflation would rise to 3.4 percent in 2021, and that it would continue its monthly asset-purchase program.
Ned Davis Research has been bearish on the dollar all year and expects it to continue to fall in inverse correlation with gold.
“As it remains unlikely that nominal and real interest rate differentials will increase the chances of a dollar recovery in the second half,” analysts wrote in the report, “the ongoing dollar weakness should remain consistent with the uptrend in gold.”
US yields are lower, but remain attractive on a nominal basis after hedging costs are deducted.
The firm continues to favor credit and stated that, while outperformance has recently stalled, breadth and momentum remain positive. Credit conditions are favorable, and high-yield bonds should perform well in the second half, according to analysts.