You really can’t blame the executives at security firm ADT Inc. for wanting to jump into one of the hottest tech-related sectors around, solar power.
And the timing of its November 9 decision to purchase privately-held Sunpro Solar for about $825 million came at a particularly good time.
ADT made the move just six weeks after the trade group the Solar Energy Industries Association (SEIA) reported a whopping 45% yearly increase in total solar power for the second quarter, the last period for full data.
I believe this proves what I have been saying about the Zero Carbon Economy – it’s an unstoppable force with massive investment potential, and solar is set to play a big role in it all.
But that doesn’t mean that I see ADT and Sunpro as the best way to play it.
Instead, I want to introduce you to a great tech firm that offers us a broad play on the entire solar panel market and is set to double its earnings in as little as 18 months…
As you’ll recall from our last chat on Tuesday, Zero Carbon, or “net-zero,” is the idea that we can end the harmful effects of greenhouse gas emissions not by cutting all of them to zero immediately, which would involve disastrous losses in other areas of the economy…
But instead by slowly reducing those emissions, and making up for the remaining ones by taking greenhouse gases out of the atmosphere elsewhere. Eventually, these will balance out, and we’ll emit net zero carbon.
After the recent COP26 climate summit in Scotland, most of the major economic powers in the world have committed themselves to achieving this net zero in the next few decades.
Now, so far these are promises – there’s no legal requirement to reach these goals. But the political and social will behind this movement is growing. Countries are on board, along with lots of businesses
A key component helping to lead the way everywhere is solar power, and a key component of solar power comes to us from Enphase Energy Inc. (ENPH).
According to research firm Allied Market Research, the world’s solar energy market will be worth a whopping $223.3 billion by 2026. That’s an annual compounded growth rate of 20.5% from 2018’s $52.5 billion.
This growth is happening across the board. Homeowners are getting on board in a big way, which accounts for a big chunk of what’s happening in solar power’s surge.
In fact, solar accounted for 56% of all new electrical capacity in the first half of this year here in the U.S. Almost 1 GW of that was residential solar power – almost as high as the record-high fourth quarter of 2020.
But utilities accounted for the bulk of new installations, coming in at 4.2 GW, a new record for Q2 installations. Texas, Arizona, and Florida accounted for almost 3 GW of that number.
The Solar Energy Industries Association counts America’s total solar power capacity at over 100 GW, or enough to power 18.9 million homes.
Still, there are over 139 million homes in the U.S. That leaves a massive upside of over 120 million homes.
This is why ADT decided to acquire Supra, of course. The firm is a leading installer of residential rooftop solar and has for five years in a row been named one of the top 5 solar installers in the U.S. by Solar Power World magazine.
And while I think ADT is making a savvy move, there is a much better way to play the entire solar market.
That way is investing in Enphase Energy, the leading provider of the so-called “micro inverters” – a piece of tech without which, solar panels would be useless.
The Strongest Link
See, when sunlight strikes a solar panel, the panel converts the light into electricity. Specifically, it converts the sunlight into direct current (DC) electricity. That’s a good start, but DC is useless around the house.
There’s still another step. The electricity needs to be converted into an alternating current (AC), which is what we use around the house.
That conversion happens through inverters. Thing is, inverters have traditionally been very inefficient, losing a substantial amount of the power generated by the solar panels.
What’s worse, traditional inverters string together all the panels in an installation together and convert the electricity at the end of that string. That saves money on these expensive, large inverters.
But it destroys the efficiency of the panels, as when they’re strung together like that, the inverter can only operate at the power level of the weakest panel.
That’s right – if a single panel is in the shade or covered by a leaf, the string inverter forces all other panels to also reduce their efficiency.
Enphase’s microinverters solve both problems. They’re efficient and so small and cheap that they can be hooked up individually to each panel.
That means they recover 20% to 30% of the power a traditional string inverter loses due to shading.
Small Inverters, Big Earnings
Enphase has had no trouble capitalizing on its leading technological position. The company was founded in 2006 and reported annual losses as late as 2018.
Today, the company has shipped over 39 million micro inverters to more than 1.7 million solar installations across 130 countries, and last year reported a net income of $188.5 million and a record-high profit.
No wonder Enphase is doing so well.
In the most recent quarter, earnings doubled. Given the shortage of work crews and supply chain bottlenecks that was an amazing feat.
Analysts expect a 67% increase for the full year. Considering that over the past three years, earnings growth came in at 203% a year, that’s a conservative forecast.
At that rate, earnings will double again in about 14 months.
So, when you invest in a great stock like Enphase, you’re not just joining the Zero Carbon economy, you’re really ramping up the value of your portfolio.
Cheers and good investing,
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Source: Strategic Tech Investor