Solar energy is a fast-growing industry that is expected to achieve a compound annual growth rate of about 17.32% through 2027, according to estimates from Mordor Intelligence. Grand View Research also has an optimistic outlook for the industry, anticipating a CAGR of 15.3% through 2030. These growth expectations are driven by powerful industry tailwinds such as the dangers of climate change, government policy support and the decreasing price of solar energy systems.
Even so, most of the big-name investment firms are still hesitant to invest in solar stocks. According to the GuruFocus All-in-One Screener, a Premium feature, there were only 17 solar stocks that had at least one Premium guru investor as of the most recent round of 13F filings for the fourth quarter of 2022, which ended on Dec. 31.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
There are several reasons why investors may still be hesitant to bet on solar stocks. For one, the industry is relatively young, so the focus on growth and research into rapid technological advancements are eating into profits. Another issue is the significant financial hurdles the industry needs to overcome, including but not limited to receiving fewer government subsidies than fossil fuel companies (direct and indirect as measured by the International Monetary Fund) and the extremely outdated electric grids in the U.S. and several other developed nations.
However, there are still a few solar stocks that gurus have been buying. According to GuruFocus data, the top four solar stocks owned by gurus are First Solar Inc. (FSLR, Financial), Sunrun Inc. (RUN, Financial), SolarEdge Technologies Inc. (SEDG, Financial) and Shoals Technologies Group Inc. (SHLS, Financial).
First Solar
First Solar (FSLR, Financial) is an industry-leading utility-scale solar manufacturer that has two new manufacturing plants under construction. The company’s thin-film panels are famous for working better than competitors in extreme weather environments such as deserts or coastlines, which is an essential quality for increasing system lifetime and reducing maintenance costs.
First Solar appears in the portfolios of 10 gurus, which is more than any other solar stock. While more gurus were selling the stock than buying it in the fourth quarter of 2022, most of those sales were reductions. Jim Simons (Trades, Portfolio)’ Renaissance Technologies is the top guru shareholder of the stock with 1.42% of shares outstanding, followed by Steven Cohen (Trades, Portfolio) and Ray Dalio (Trades, Portfolio)'s Bridgewater Associates.
One reason gurus may be pulling back somewhat from First Solar is because its share price has been on a rapid upward trajectory since mid-2022. It now has a forward price-earnings ratio of 28.88. On the bright side, analysts surveyed by Morningstar (MORN, Financial) expect earnings per share to reach $21.52 in full-year 2025, which would be a significant improvement from the loss per share of 41 cents in 2022, so the stock could easily grow into its valuation if the company’s performance is even half as good as expectations.
Sunrun
Based in San Francisco, Sunrun (RUN, Financial) is the leading provider of residential solar installations and services in the U.S. It provides solar panels, batteries, installation, education and other solar power equipment and services through both rental and purchase agreements to residential homeowners in 22 U.S. states.
Sunrun stock was owned by seven gurus as of the most recent 13F reports. More gurus were buying the stock than selling it in the fourth quarter, though only by a narrow margin. The top guru shareholder of the stock is Jeremy Grantham (Trades, Portfolio) with 3.29% of shares outstanding, followed by Cohen and Philippe Laffont (Trades, Portfolio).
Sunrun’s stock has taken quite the beating since November 2021, but we have to look at things in context: even after declines, the stock still trades at a price-earnings ratio of 26.67, meaning it was massively overvalued at all-time highs. Sunrun also has a problem with high sales, general and administrative expenses, which ate up 40% of revenue in 2022. Morningstar analysts expect earnings per share to rise to $1.41 by 2025, up from 80 cents in 2022.
SolarEdge Technologies
SolarEdge Technologies (SEDG, Financial) is an Israeli photovoltaics company that primarily produces power optimizers, solar inverters and monitoring systems that are aimed at increasing the energy output of solar power arrays. This company has been a go-to component supplier for residential solar installers over the past decade. It has also expanded into commercial solar and energy storage, as well as electric mobility solutions in Europe.
SolarEdge appeared in the portfolios of seven gurus as of the fourth quarter’s end. The stock saw a notable surge in guru buying during the fourth quarter, including three new buys. The top guru shareholder of SolarEdge is Grantham with 1.18% of shares outstanding, followed by Cohen and Louis Moore Bacon (Trades, Portfolio).
SolarEdge trades at an incredibly high price-earnings ratio of 190.76, but what is even more astonishing is the stock has been ranging at that same valuation level since the end of 2020 despite the bear market. It is clear the market has high hopes for this stock, and Morningstar analysts seem to agree, projecting earnings per share could rise to $13.71 in 2025 compared to $1.65 in 2022.
Shoals Technologies Group
Shoals Technologies Group (SHLS, Financial) is the leading provider of electrical balance of system for solar energy projects and electric mobility solutions, with offerings such as custom harness solutions, combiner boxes, junction boxes, PV wire, in-line fuses, racking and string level monitoring solutions. The high cost of failure of EBOS components serves as a competitive advantage. The company is headquartered in Portland, Tennessee.
Previously, there was little interest from gurus when it came to Shoals Technologies, but in the fourth quarter of 2022, five gurus initiated a new stake in the company, bringing its total number of guru shareholders up to seven. Ron Baron (Trades, Portfolio) is now the stock’s top guru investor with 1.56% of shares outstanding, followed by Bacon and Robert Karr (Trades, Portfolio).
Shoals Technologies had its initial public offering in January 2021, and shares have dropped 28% since then. The price-earnings ratio is still a little on the high side at 27.51, but the company has grown its revenue and earnings per share at annualized rates of 31% and 77.9%, respectively, over the past three years. Morningstar analysts expect high growth to continue with earnings per share rising from 85 cents in 2022 to $1.63 in 2025.
