Will The 2021 Blue Wave Be Bullish For Clean Energy Equities?

Summary

• The Democratic Party controlled the House, the Senate, and the Presidency during the first two years of the Obama/Biden administration.
• Clean energy stocks did not, in general, rally significantly during the first Obama/Biden term.
• Clean Energy stocks have already had a very significant run up during 2020.
• Clean EnergyStocks have very high valuations based on price to earnings ratios.

Currently an argument is being made that the upcoming control of the Presidency, the House of Representatives, and the Senate will be very bullish for alternative energy stocks. Since this argument is political and not economic, I think the best analogy to look at is what happened to clean energy stocks during the Obama/Biden Administration. During the first two years of Obama/Biden Presidency the Democrats controlled the Presidency, the House, and the Senate. The alternative energy sector did not, in general, do particularly well during this time period or during the first term of the Obama Presidency.

For the purpose of this study we will largely look at some of the components of the ALPS Clean Energy ETF (ACES). ACES and several of its components such as, Sunrun (RUN), Enphase (ENPH), and Next Energy Partners (NEP) do not have a long enough track record to see how they performed during Obama’s first term.

First Solar (FSLR) peaked at $285/share in July 2008 before Obama was elected. FSLR dropped to $105/share after the 2008 election and had a rally to $190/share by May 2009. By the end of Obama’s first term in 2012 the stock had dropped to $19/share.

Plug Power (PLUG), a hydrogen fuel cell company, was a Dotcom bubble stock peaking at $1174/share in February 2000. It did not notice President Obama’s election and just kept dropping to $1/share by the end of Obama’s first term in 2012.

LED stocks showed some positive movements under President Obama probably due to Department of Energy mandates, but most of the stock increases did not last. CREE Inc. (CREE), another Dotcom bubble stock, peaked at $97/share in March 2000 before dropping to around $10/share in April 2001. CREE went as low as $16/share in November 2008 before rallying to $73/share in April 2010. CREE ended Obama’s first term around $25/share.

Universal Display Corporation (OLED) was also a Dotcom bubble darling peaking at $30/share in June 2000 before dropping to $5/share by August 2002. OLED went as low as $6/share in February 2009 during Obama’s first term. OLED rallied to $55/share in March 2011 before settling down to $30/share near the end of President Obama’s first term.

Northland Power Inc. (NPI.TO) a diversified Canadian green energy company did have a significant run up during the first term of the Obama/Biden Presidency. Northland started at about $10/share at the beginning of Obama’s first term in 2009 and rallied to $20/share by October 2012 and has done well until today. The 2009 Recover Act that contained a $90 billion subsidy for renewable energy may have contributed to this performance.

Most alternative energy stocks currently have very high valuations based on most market metrics. For example: CREE (P/E = negative), ENPH (P/E= 157), FSLR (P/E = 46), OLED (P/E = 104), Net Energy Partners (P/E = negative), PLUG (P/E = negative), and RUN (P/E = 1,217). The Renewable Energy Group (REGI), a biomass company, does have a more reasonable valuation (P/E = 7), as does Toronto, CA based renewable company Northland Power Inc. (NPI.TO) (P/E = 25). All of these stocks had significant run-ups during 2020.

This analysis does not indicate that politics cannot significantly affect stock prices. The Affordable Care Act, also known as Obamacare, was very kind to health insurance stocks such as Cigna Corporation (CI) and health care information technology companies such as Cerner Corporation (CERN). I would want to see specific legislation, not just vague campaign promises, and more reasonable clean energy company valuations before recommending any of these alternative energy companies.