My top alternative energy stock for 2022 is SunPower (SPWR), a financially well-backed company, asserts Kirk Spano, editor of Fundamental Trends Investment Letter and a Registered Investment Advisor with Bluemound Asset Management, LLC.

We first invested in SunPower stock at single digit prices as they shifted their approach from manufacturing to Distributed Generation of solar energy. The first step in our investment process is to identify secular trends.

The clean energy transition is in full effect! The EIA is reporting that over 90% of new electricity generation in America is now from renewable sources. They expect over 60% of that to be from solar in coming years as it takes the lead from wind. The International Energy Agency is reporting similar with 50% growth rates.

SunPower, which is majority owned by TotalEnergies (TTE) — one of the oil supermajors — sees a 10x plus total addressable market opportunity. I believe they are being conservative.

SunPower focuses on the residential and commercial solar, battery and energy management business. They are no longer commoditized panel manufacturers.

In the medium and long-term, residential solar is a great growth generator for SunPower. Their partnership with Enphase (ENPH) makes them a leader here. In the short-term, the numbers are growing with 14.3K new customers in Q3 2021 with 58k in the pipeline including multi-family.

The residential play will take time to develop as more new constructions install solar, particularly in California. Investors should not expect massive installations on existing homes though, especially in cities, as site lines, structures and financial resources will only support a portion of that market.

In the short-term, the light commercial space is a massive opportunity. It is rapidly expanding and SunPower has a growing backlog of business. The simplest way to think about this market, in an era of tax incentives and an ability to lower energy costs, companies with buildings that have flat roofs or parking lots are a huge market.

The company has also been selected for the DOE’s grid services demonstration project. I expect that SunPower’s penetration into microgrids will be significant. Think industrial parks. Energy management and distribution at below utility scale is poised to grow rapidly in coming years as the grid decentralizes. Another step in our process is to analyze government policy.

Clearly, SunPower is on the right side of government policy, just like many other industries. Tax incentives to move towards solar and clean energy are large and long-term. I believe we might see more laws requiring certain buildings to include solar and energy management systems, like California.

Fundamentally, the company is slightly profitable and that is improving as EBITDA improves alongside the company’s growth and declining cost structure with scale. SunPower is on the verge of free cash flow generation.

Delays brought on by Covid and some collection issues have held back broader profitability, but that should remedy soon. Cash on the balance sheet is over $500 million providing security against volatility. Analysts have been revising estimates upwards. These are the catalysts that investors should look for to generate true alpha.

Market conditions, Covid and execution risks can certainly send shares down short-term. I would view any dip in SunPower shares as an opportunity to increase holdings or scale in if you don’t own any. Millennials have taken an interest in the stock, which is very important for future share price.

I have a 3–5-year price target on SunPower of $125 based on a future market cap of around $25 billion and 200 million shares outstanding.

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