The world is transitioning away from dirty fuels to clean energy at a rapid rate. Coal use is in decline, wind and solar production is up, and even oil disruption is on the horizon with electric vehicle sales on the rise.
As this transition continues, there are multiple areas of potentially explosive growth for renewable energy stocks. And three of our Fool.com contributors think Bloom Energy (BE 1.69%), Atlantica Sustainable Infrastructure (AY +0.00%), and Chart Industries (GTLS 0.07%) are well positioned for the energy transition.
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Filling a storage gap
Travis Hoium (Bloom Energy): If there's going to be a true transition to renewable energy over the next few decades, a massive gap in the system is energy storage. Wind and solar energy are inherently volatile and the grid needs consistent electricity supply to be stable.
Batteries have started filling some of the gap in energy storage needs for seconds, minutes, or hours of power. But what about longer durations like days or weeks when renewable energy isn't available? That's where hydrogen comes into play.
Bloom Energy makes an industrial-scale fuel cell that turns stored hydrogen and oxygen from the air into water and electricity. And the electrolyzer it is testing will run the system in reverse, enabling the storage of hydrogen from renewable energy power and water.
BE Revenue (TTM) data by YCharts
Bloom Energy's revenue and gross margin have been improving consistently over the past three years and that's even before we reach grid parity for hydrogen and new applications like hydrogen-powered ships are developed, which Bloom is working on with Samsung Heavy Industries.
Storing large amounts of clean energy is going to be a big need in the renewable energy transition and Bloom Energy is one of the companies that can fill the gap, which makes it a potentially long-term winner for investors.
A value in infrastructure
Howard Smith (Atlantica Sustainable Infrastructure): The transition toward increasing renewable energy generating capacity is under way, and there are many ways for investors to participate. Atlantica Sustainable Infrastructure owns and operates a global portfolio of renewable energy generating assets. Its long-term contracts with customers provide steady, and growing, revenue. It offers investors a foundation of renewable infrastructure at a good value compared with some of its more well-known peers.
Atlantica's portfolio includes assets in North America, South America, Spain, Algeria, and South Africa. In its third-quarter earnings presentation, the company said it is following an accretive growth strategy, and continues to have a "strong pipeline of identified investment opportunities."
Atlantica currently yields more than 4%, and the company's cash flow has allowed it to continue increasing its dividend payments to shareholders. Over the last three years, the company has increased its dividend by 35.5%. And investors can still buy into this growing renewable energy company at a discount to its peers. Measuring enterprise value against either EBITDA or revenue shows the valuation comparison.
AY EV to EBITDA data by YCharts
Atlantica doesn't just have renewable energy assets. It also has natural gas generation, transmission, transportation, and water assets. But renewables made up almost 80% of revenue as of the quarter ended Sept. 30, 2020.
For investors looking for a renewable energy infrastructure investment, Atlantica provides a good foundation for a portfolio. It should continue to grow its asset base, and its cash available for distribution to shareholders with it. There are more aggressive ways to play the renewables sector, but this one provides what should be growing income, with potential for capital appreciation from today's share price.
Charting a new future
Jason Hall (Chart Industries): According to Brookings, more than half the world's population is in the middle class already, and that figure is set to grow by another 1.3 billion between 2020 and 2030. And this transition -- people moving from a subsistence existence to having disposable income -- will result in a lot of demand for cheaper, cleaner electricity. That means a continued transition away from coal, and to natural gas, not just renewables.
That transition is going to be great for Chart Industries, a leader in cryogenic gas processing and storage equipment manufacturing. Chart recently reported full-year 2020 results, and announced record gross profit, margins, operating income, adjusted earnings per share, and its biggest-ever backlog of future orders. Management also raised its full-year guidance for 2021. Things are going incredibly well.
And it gets even better, since management isn't just resting on its prospects in natural gas, or its legacy industrial gas customers. Chart announced five separate acquisitions and investments in carbon capture, water treatment, and hydrogen-related assets in the fourth quarter. In other words, Chart is leveraging its technical expertise for the near-term transition to natural gas, while also setting itself up for a low-carbon future where carbon capture and hydrogen will be playing an increasingly important role.
Big opportunities for renewable energy stocks
The electricity market alone is a multi-trillion dollar market each year, so the companies leading the charge to transition from fossil fuels to clean energy have a big market to grow into. Bloom Energy, Atlantica Sustainable Infrastructure, and Chart Industries are all well positioned in their niche in the market and could grow for decades to come, which is why they should be on your radar today.
