Despite underperformance, Samsung SDI and First Solar offer value in the green tech sector.
Green technology stocks have faced a challenging year, with prices falling globally due to higher costs, interest rates, equipment failures, and unfavorable weather conditions. Even with over USD 1 trillion spent by the U.S. government on green energy, the iShares Global Clean Energy ETF ICLN, the largest clean energy technology fund, is down 28.5% year-to-date. However, within the Morningstar Global Emerging Green Technologies Select 30 Index, two stocks stand out as undervalued and potentially lucrative investments: Samsung SDI and First Solar.
The State of Green Tech Stocks
Green tech refers to environmentally friendly technology that can produce clean energy, utilize alternative fuels, and have a minimal environmental impact compared to fossil fuels. Despite the potential of green technology, stocks in this sector have struggled in recent times. The Morningstar Global Emerging Green Technologies Select 30 Index, which tracks companies generating at least a fourth of their revenue from innovative green technologies, has underperformed the Morningstar US Market Index and the Morningstar Global Markets Index. However, within this index, there are opportunities for value.
Samsung SDI and First Solar: Two Undervalued Stocks
Among the stocks in the Morningstar Global Emerging Green Technologies Select 30 Index, Samsung SDI and First Solar stand out as undervalued options.
Samsung SDI, a major player in the Samsung Group and a global supplier of lithium-ion rechargeable batteries, is trading at a 37% discount to Morningstar’s fair value estimate. The company’s expertise in electronic materials has allowed it to supply various components to Samsung Electronics, the world’s largest consumer electronics and memory manufacturer. With a projected revenue growth rate of 17% over 2022-2025, driven by the increasing demand for rechargeable batteries in electric and hybrid vehicles, Samsung SDI has significant growth potential.
First Solar, the world leader in thin-film solar panel technology, is also trading at a discount, with a 21% difference between its current price and Morningstar’s fair value estimate. As a pure-play manufacturer of solar panels, First Solar is well-positioned to benefit from the expected growth in the solar energy sector. With capacity expected to triple by the end of 2025, thanks to its factories in the U.S. and India, the company has the potential for substantial profits in the coming years.
Expert Insights on Samsung SDI and First Solar
Morningstar equity analysts provide further insights into the potential of Samsung SDI and First Solar:
Vincent Sun, Morningstar equity analyst, highlights Samsung SDI’s strong position in the lithium-ion rechargeable battery market and its ability to supply materials to Samsung Electronics. He predicts steady revenue growth for the company, driven by the growth of rechargeable batteries for automobiles and the demand for electronic materials for 5G phones.
Brett Castelli, Morningstar equity analyst, emphasizes First Solar’s leadership in thin-film solar panel technology and its expected windfall in profits due to domestic manufacturing credits and its leading position in the U.S. market. He also notes the company’s potential to leverage its thin-film technology as the solar panel industry shifts to tandem cells in the future.
The Road Ahead for Green Tech Stocks
While green technology stocks have faced challenges this year, there is still potential for value and growth within the sector. Investors should keep an eye on fair values and potential bargains as the market continues to evolve. Companies like Samsung SDI and First Solar, with their undervalued stocks and strong positions in their respective markets, could be attractive opportunities for investors looking to capitalize on the long-term potential of green technology.
Conclusion: Despite the underperformance of green technology stocks, there are still opportunities for investors to find value in the sector. Samsung SDI and First Solar, with their undervalued stocks and promising growth prospects, stand out as potential investments. As the demand for clean energy continues to rise, these companies could benefit from the transition to a more sustainable future. Investors should carefully consider the potential of green tech stocks and monitor fair values to make informed investment decisions in this evolving market.
