We’re at the start of a long-term change in the global economy. Public opinion – and also, to an extent, the human desire to survive – is promoting green tech and green industry, and setting the stage for the future of energy production. We don’t have a crystal ball, so we can’t see the full shape of things to come, but in recent months, investors have been moving toward solar stocks.

While supply chain bottlenecks and labor shortages are impacting the solar power industry, these issues are not specific; they are affecting the economy generally. Several industry-specific factors, however, are putting tailwinds behind the solar scene.

First off, there’s robust demand for solar power, along with its ancillary equipment and infrastructure. At bottom, this is the key factor. Demand ensures that there’s a market.

On the regulatory front, two legislative acts are acting to support solar. The passage of the infrastructure bill earlier this month was a major catalyst, as the $1 trillion-plus bill includes significant funding for the solar power sector. This was followed by the House of Representatives passing a version of the President’s ‘Build Back Better’ bill. BBB, as it’s called, includes a more extensive raft of pro-green policies; investors now are waiting to see if the bill can be steered to passage in the Senate.

In the meantime, the solar industry has rallied on these points, and investors are taking longer second looks at several solar stocks. Wells Fargo’s analysts have pointed out two companies involved in the production of microinverters, a key piece of hardware in solar power units, and notes how they will benefit from the current situation. We’ve used the TipRanks platform to pull up the details on the firm’s picks.

Enphase Energy (ENPH)

We’ll start with Enphase. The company manufactures solar microinverters, the hardware that converts the direct current (DC) power produced in a photovoltaic solar panel into alternating current (AC) energy that can be used in existing electrical transmission systems. Enphase leads the market in inverter production, by virtue of its first mover advantage; it was the first company to commercialize inverter production at scale.

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Last month, Enphase saw two major share price catalysts. First, the company announced the launch of its new IQ8 microinverter, the most advanced version of the technology on the market. The IQ8 device is ‘smart,’ and per the company, it is capable of forming its own microgrid and supplying backup power during an outage using only direct solar energy – it does not require a battery during daylight. This latest generation of microinverter is the first microgrid-forming version on the market.

The second catalyst was the 3Q21 earnings report. Enphase showed record revenue – at $351.5 million, the top line was up 96% year-over-year. EPS was also strong, at 60 cents per share on net income of $84.2 million. The EPS was double the year-ago value. Generally, investors have applauded the company’s performance in 2021; shares are up by 41% year-to-date.

Wells Fargo’s Praneeth Satish thinks the shares have more room to run. The analyst initiated his coverage here with an Overweight rating and a $313 price target that implies a one-year upside of 26%. (To watch Satish’s track record, click here.)

Satish writes, “We believe ENPH stands to benefit from a number of long-term tailwinds in the solar market, including (1) the continued expansion of the residential and commercial solar market, (2) higher battery attach rates over time, and (3) the decentralization of energy production. ENPH has two key competitive advantages that should support growth visibility: (1) regulation NEC 2017, which creates barriers to entry in the US market; and (2) product innovation & software technology, which provide customers with an intelligent home energy management system.”

There are no fewer than 18 reviews of this stock from Wall Street’s analyst corps and 16 of them recommend to Buy, overwhelming the 2 Holds for a Strong Buy consensus rating. The shares don’t run cheap; they are priced at $247.5, and the $266.12 average target indicates room for a modest 7% gain in the coming year. (See ENPH stock analysis on TipRanks)

SolarEdge Technologies (SEDG)

The second Wells Fargo pick we’ll look at is SolarEdge, a main competitor of Enphase. Like the larger company, SolarEdge produces microinverters. In addition, this Israel-based company also develops and commercializes other necessary components of solar power systems, including power optimizers and monitoring systems. SolarEdge operates in the global market, and has offices in Germany, Italy, Japan, and the US.

As the smaller competitor, with a market cap about half that of Enphase’s, SolarEdge has to differentiate itself to survive in a cutthroat market. Where Enphase focuses on microinverter technology, SolarEdge has diversified to a larger extent. This company does make high-end inverters, but it also produces energy storage solutions for home and commercial applications. These products are designed to maximize the efficiency of solar power installations, to increase the customer’s energy independence, and to lower electricity bills long-term.

At the end of October, SolarEdge announced that its Energy Bank battery and Energy Hub inverter systems are now available on the North American markets. The battery leads the industry at 94.5% round trip efficiency, while the Hub provides more than 10kw of backup power in the event of grid failure.

SolarEdge released its 3Q report on November 2. In another likeness to Enphase, the company reported record-level revenue. The top-line figure of $526.4 million was up 55% year-over-year, while EPS came in at 96 cents, up from 83 cents in 3Q20 and 82 cents in 2Q21.

In his recent initiation note, Wells Fargo’s Michael Blum writes lays out the bullish case for Solar Edge: “We view SEDG’s primary competitive advantage as product innovation and software technology, which enables the various components of the solar system to interface seamlessly, provides product reliability, and allows the customer to monitor & optimize their system to their specifications through easy to use apps. These services involve complex software algorithms that protect SEDG’s product offerings from cheaper, overseas competition.”

In line with these comments, Blum sets an Overweight (Buy) rating here, along with a $441 price target suggesting an upside of 31% in the next 12 months. (To watch Blum’s track record, click here)

This stock’s Moderate Buy consensus rating is based on 19 reviews, breaking down to 15 Buys, 3 Holds, and 1 Sell. The current trading price is $336.8, and the $379.35 average price target implies a one-year upside of 13% from that level. (See SEDG stock analysis at TipRanks)

To find good ideas for solar stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.

Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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