Electric vehicle (EV) stocks like Tesla and Lucid Group have been skyrocketing, with Tesla up 40% in the last month and Lucid gaining 25% on July 12 alone. However, they are still down significantly from their all-time highs. Investors looking to buy the dip in EV and renewable energy companies have come to the right place.
Here's why Enphase Energy(NASDAQ: ENPH), Keysight Technologies (NYSE: KEYS), and Fluence Energy(NASDAQ: FLNC) are three better growth stocks to buy now than Tesla and Lucid.
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Enphase has done a good job navigating the downturn in residential solar
Daniel Foelber (Enphase Energy): Enphase Energy is one of the global leaders in microinverter-based solar and battery systems for residential and commercial customers. But eight years ago, the stock was under $2 a share and Enphase was on the brink of bankruptcy. Fast-forward to today, and the stock is down over 65% from its all-time high, but it has still been a major winner for some patient investors.
A key part of Enphase's success has been its high margins. Enphase provides merely one aspect of the solar system. Still, it's critical to convert the direct current from the Sun into the alternating current needed to run applications and keep the lights on. Whereas other parts of the solar system (like panels) were traditionally lower margin, Enphase stood out as having a quality business model in an otherwise commoditized industry.
A low interest rate environment and a push for greater renewable investments were boons for Enphase. It looked like the perfect business -- with high margins in a fast-growing industry. However, supply chain challenges and higher interest rates have made solar adoption less attractive.
Enphase has reduced its manufacturing capacity and is focusing on U.S. partnerships that can take advantage of tax credits from the Inflation Reduction Act to provide a better value for its customers. Its decision to maintain margins has accelerated sales declines but limited losses, with Enphase reporting its lowest quarterly revenue in over three years in the first quarter of 2024.
However, management is optimistic that the worst may be over and that business could begin to pick up as Enphase's distributors work down inventory and book new orders. The solar industry has been crushed recently, with the Invesco Solar ETFhitting a four-year low in early July.
Enphase could be worth considering if you're interested in the long-term tailwinds of renewable energy adoption and are willing to endure potentially more volatility. There's only so long that companies can burn through cash before new financing terms become unbearable. Enphase has always been a high-risk, high-potential reward investment.
The Invesco Solar ETF or companies like First Solar and Canadian Solar are arguably safer plays. But for investors who like Enphase's position and believe in a recovery in residential solar, now could be an excellent time to take a closer look.
Takeover activity in this industry is a sign of confidence
Lee Samaha(Keysight Technologies): This company makes design and test solutions across end markets, including communications, semiconductors, aerospace, defense, automotive, energy, and electronics. As stated in its SEC filings, "Our revenue is derived primarily from solutions addressing research and development ("R&D") applications, and to a lesser degree, applications in manufacturing and operations."
As such, Keysight is a business that will perform extremely well when the economy is growing and customers are expanding R&D spending. However, it will also do poorly when customers are being cautious (as they are now).
KEYS Revenue (TTM) data by YCharts
Still, history suggests its end markets will improve cyclically (the semiconductor market is already in recovery), and the leading protagonists know this and are taking advantage of attractive valuations to make acquisitions. For example, Emerson Electric bought Keysight's rival NI for $8.2 billion in equity last year. Meanwhile, Keysight itself has agreed to a $1.5 billion takeover of automated test and assurance company Spirent Communications. Although a U.K. company, Spirent generates 57% of its revenue in the Americas and 42% in Asia Pacific.
These acquisitions support the idea that 2024 will prove to be a trough year. Looking at the long term, the increasing technological complexity of Keysight's customers' products means an excellent underlying demand for test and measurement solutions. Trading at 24.5 times estimated 2024 earnings, I think Keysight is an excellent value for a growth company at the bottom of its earnings cycle.
Strong free cash flow is powering Fluence to further growth
Scott Levine (Fluence Energy): Experienced investors know that picking up shares of growth stocks usually entails a greater degree of risk. There's neither the certainty that young companies will flourish as they imagine they will nor the guarantee that they will survive the crucible of operating as a publicly traded company. But then there are companies like Fluence Energy -- a battery energy storage specialist and provider of digital solutions for renewable energy businesses.
Fluence doesn't have a lengthy operating history since it held its initial public offering in 2021. There's a caveat, though. Fluence is a joint venture of two industry stalwarts, Siemens and AESCorporation, so while it hasn't existed on its own for years, per se, it is helmed by two experienced companies that have proven their prowess in the energy industry.
Currently, battery energy storage systems are experiencing significant growth. The U.S. Energy Information Administration, for example, forecasts that these systems can grow almost 90% year over year by the end of 2024 with growth expected in the years to come. Supporting the position that battery energy storage solutions are increasing in demand, Fluence recently reported its 10th consecutive quarter of order intakes exceeding revenue recognized.
And that's not the only auspicious sign for the company. As of March 31, 2024, Fluence had $3.7 billion in backlog (signed purchase orders) and $16.3 billion in its pipeline (uncontracted potential revenue). At the same time last year, Fluence's backlog and pipeline totaled $2.8 billion and $11.2 billion, respectively.
Unlike upstart companies, Fluence is already generating positive cash flow. In the first half of 2024, Fluence generated $87.8 million in free cash flow. This contributes to a significantly lower degree of risk for the company as it is already generating cash organically, illustrating further that growth investors would be wise to consider powering their portfolios with Fluence stock.
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Daniel Foelber has positions in Enphase Energy. Lee Samaha has no position in any of the stocks mentioned. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Emerson Electric, Enphase Energy, Fluence Energy, and Tesla. The Motley Fool recommends First Solar. The Motley Fool has a disclosure policy.
