Tell me we're having salmon for dinner, and I'll be a happy man. Tell me you found a salmon-like company (one that's swimming upstream) and I'll be even happier. Innovators that are able to implement business practices that fly in the face of the conventional wisdom don't come around too frequently. But when these leaders do emerge, they often represent compelling investment opportunities that have the potential to provide explosive returns.
Unsurprisingly, in the case of energy investing, these nonconforming companies, BWX Technologies (BWXT 1.81%), Plug Power (PLUG 12.88%), and SolarEdge Technologies (SEDG 3.24%), deal in alternatives to fossil fuel. Forget coal, oil, and natural gas: These businesses are reimagining the energy landscape by turning to nuclear energy as well as the power of the sun and hydrogen.
Image source: Getty Images.
BWX Technologies
With a history that precedes the Civil War, BWX Technologies has a story that traces its roots to the 1850s and the invention of the water tube boiler. Since then, including its spinoff from Babcock & Wilcox in 2015, BWXT has become a leader in providing nuclear solutions to both the government and commercial customers.
What I find particularly compelling about the company, though, is its focus on a novel approach to nuclear power: TRi-structural ISOtropic (TRISO) coated kernels. According to the Department of Energy: "Each TRISO particle is made up of a uranium, carbon and oxygen fuel kernel. The kernel is encapsulated by three layers of carbon- and ceramic-based materials that prevent the release of radioactive fission products." Because of this layering system, TRISO kernels cannot melt in a reactor, eliminating the possibility of nuclear meltdowns like the recent one at Fukushima in Japan, and can be used in smaller reactors that don't require the traditional enormous containment structures. BWXT describes itself as "the only U.S. company to manufacture irradiation-tested uranium oxycarbide TRISO fuel using production-scale equipment."
Evidently, there is growing interest in the potential of TRISO-fueled nuclear power plants. Earlier this month, the Idaho National Laboratory awarded BWXT a $26-million, 20-month contract to expand and upgrade its TRISO manufacturing capability.
And it's not the only interest in TRISO that BWXT is receiving. CEO Rex Geveden said, "This contract award is another in a string of recent announcements at BWXT related to our unique ability to manufacture TRISO fuel at scale for both government and commercial customers."
Moreover, Joe Biden seems keen on next-generation nuclear reactors, identifying them in his recently revealed climate plan, while President Trump has also espoused support for the nuclear industry.
Plug Power
An industry leader in fuel cells, Plug Power flies in the face of conventional power sources with the help of hydrogen. Although the generation of commercial hydrogen, such as that used in fuel cells, still depends on natural gas in a process called steam reforming, Plug Power has set a goal of using 50% green hydrogen (generated using solar and wind power to electrolyze water) by 2024. Primarily, the company provides its fuel cell solutions to makers of material-handling equipment, such as forklifts, where it has secured big-name customers like Walmart and Amazon. But recently, Plug Power has made significant progress in its effort to help customers cut ties with traditional power.
Image source: Plug Power.
In June, Plug Power took a major step in realizing its plan to become vertically integrated by completing the acquisitions of two companies, United Hydrogen Group and Giner ELX. Plug Power lauded these deals as helping to solidify its position in the hydrogen industry "with capabilities in generation, liquefaction and distribution of hydrogen fuel complementing its industry-leading position in the design, construction, and operation of customer-facing hydrogen fueling stations." Additionally, Plug Power noted that the acquisition of Giner ELX will play an important role in helping the company achieve its 2024 green hydrogen target.
More recently, Plug Power said that it's broadening its reach even further by entering the large-scale backup-power market with its GenSure HP (high power) platform, which will make its way into customers' hands in 2021. Using Plug Power's 125-kilowatt ProGen fuel cell engines, the GenSure HP platform presents a modular solution that can be scaled up to meet the power needs of individual customers such as operators of data centers, energy storage systems, and microgrids.
SolarEdge
Unlike BWXT and Plug Power, SolarEdge has its sights set on the sun. Unlike traditional photovoltaic (PV) systems, which use string or central inverters to collect the sun's power, SolarEdge has developed an alternate solution: power optimizers. Installed at each PV module, SolarEdge's direct current (DC) power optimizers provide a more flexible solution that allows the PV system to collect solar power more efficiently and at a price comparable to the traditional systems.
Image source: Getty Images.
Over the past few years, the company has made a concerted effort to diversify beyond its core competency, power optimizers, into other areas of clean energy. With the acquisitions of Gamatronic and Kokam in 2018, SolarEdge made its foray into energy storage, thus offering its customers an opportunity to increase the value of their residential solar systems. SolarEdge continued on its shopping spree in 2019 with the acquisition of SMRE, which develops powertrain technology for electric vehicles.
It's not only American rooftops where SolarEdge is harnessing the sun's rays. As of December 2019, the company had installed solar PV systems in 133 countries and, as of Q1 2020, SolarEdge had shipped nearly 55 million power optimizers around the world, where it monitors more than 1.5 million systems.
Closing thoughts
While BWX Technologies, Plug Power, and SolarEdge are all at the vanguard of renewable energy, it is incumbent upon investors to recognize that this alone doesn't warrant an investment. Plug Power, for example, has consistently failed to achieve profitability and positive cash flow, suggesting it should only attract the attention of the most risk-tolerant of investors. BWXT and SolarEdge, on the other hand, appear to be better suited for those who are interested in companies on firmer financial footing.
