3 Hypergrowth Nasdaq Stocks for a Clean Energy Future

The path toward cleaner air and a healthy planet has long clashed with economic growth and industrialization. But reduced costs for renewable energy paired with technological innovation and government support have led to a surge in renewable energy power generation, electric vehicles (EVs), and lower emissions in the fossil fuel industry.

First Trust Nasdaq Clean Edge Green Energy Index ETF (NASDAQ: QCLN), Enphase Energy (NASDAQ: ENPH), and LanzaTech Global (NASDAQ: LNZA) offer three exciting ways to invest in a clean energy future. Here’s what makes each growth stock a great buy now.

Two workers wearing reflective vests and hard hats climb a staircase next to a row of wind turbines.

A diversified way to play growth in clean energy

Lee Samaha (First Trust Nasdaq Clean Edge Green Energy Index ETF): If you want exposure to the clean energy theme but don’t want the headache of picking winners in the sector, it makes sense to consider buying an exchange-traded fund (ETF). Various clean energy ETF options are available, but the First Trust offering is exciting.

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The ETF differs slightly from others in its field as it offers exposure to transportation and renewable energy, clean energy technology, and materials. As such, Tesla, Lucid Group, and Rivian Automotive are top 10 holdings, alongside Enphase Energy and ON Semiconductor (which offer clean energy technology), and Albemarle (which produces lithium for batteries).

With an expense ratio of 0.58%, the ETF has relatively high fees, but it offers the investors broad-based exposure to some of the high-growth clean energy themed stocks.

Its top 10 holdings comprise over 55% of its allocation, implying it can generate noncorrelated returns. In other words, it’s not just an index-hugging investment. But, of course, that could work both ways, as in outperformance or underperformance relative to a basket of clean energy index stocks.

Still, if you like clean energy and are looking for a way to invest in the sector without taking on too much stock-specific risk, then this ETF offers a valuable option.

A solar stock with a torrid growth rate

Daniel Foelber (Enphase Energy): Enphase is a good example of an excellent company with a red-hot growth rate. The microinverter, energy solution, and battery system company is doing just about everything right as it capped off another banner year in 2022 with record revenue, earnings, and free cash flow (FCF) — all the while maintaining a high gross profit margin. In just five years, the company has transitioned from being barely profitable to immensely profitable and has increased revenue by more than sevenfold.

Metric	2022	2021	2020	2019	2018
Revenue	$2,331 million	$1,382 million	$774.42 million	$624.3 million	$316.2 million
Net income	$397.4 million	$145.5 million	$134 million	$161.2 million	($11.6 million)
Free cash flow	$698.4 million	$299.5 million	$195.8 million	$124.3 million	$12 million
Gross profit margin	41.8%	40.1%	44.7%	35.4%	29.9%

Data source: Enphase Energy.

And although the stock remains very expensive no matter what metric you look at, the valuation is no longer as sky-high as it once was. If Enphase stock languishes while the company keeps growing rapidly, then the valuation will continue to look more and more reasonable.

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For example, Enphase is guiding for firsth-quarter 2023 revenue of $700 million to $740 million, which is nearly the same amount of revenue that the company made in all of 2020.

Another advantage for Enphase is its balance sheet. As of the most recent quarter, it has more cash than debt outstanding. The company is well positioned to handle the cyclical nature of the solar industry since Enphase is FCF positive, has high margins, and doesn’t rely on debt to run its business.

Enphase isn’t a cheap stock and probably won’t be cheap for some time unless the stock price takes a major hit. But there’s no denying management’s competence and ability to deliver on promises. And for that reason, the stock is worth a look for risk-tolerant investors.

Cash in on carbon capture with LanzaTech

Scott Levine (LanzaTech): Solar and wind power stocks may get the majority of investors’ interest, but those aren’t the only green energy games in town. Debuting on the public markets last month after its merger with a special purpose acquisition company, LanzaTech is a company that offers the ability to invest in carbon capture. And the opportunity for growth here is remarkable. In looking at the different applications for LanzaTech’s technology, management identified a total addressable market of $1 trillion.

Using bacteria and specially designed reactors, LanzaTech has developed technology that transforms carbon into desired chemicals. According to a recent investor presentation, it has the ability to “transform a greenhouse gas into a range of materials that are traditionally made from petroleum.”

There are a variety of applications for the chemicals that LanzaTech produces from its carbon capture technology, but one that helps to further the transition to clean energy is jet fuel. Retaining a 25% ownership stake, LanzaTech founded LanzaJet, a company focusing on the production of sustainable aviation fuel (SAF). Currently, LanzaJet is developing a facility that will convert ethanol to SAF and is expected to achieve annual production of 9.5 million gallons. For context, the total demand for SAF is projected to be 14 billion gallons in 2030.

While LanzaTech recognizes ample market opportunity, investors should note the company’s financial projects to better appreciate its growth potential. Reporting revenue of $18 million in 2020, LanzaTech estimates 2022 revenue of $65 million. With regard to profitability, the company expects to be positive on an adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) basis in 2023, growing it to $250 million in 2025.

While LanzaTech is in the early innings of its growth — and early investors have the potential to recognize handsome profits — it’s important to recognize that this stock still entails a fair degree of risk — thus, investors should allot the size of their positions accordingly.