Energy is an old economy sector that in recent years has been hit by an influx of new technologies and ideas. The demand for power isn't subsiding, but the way we generate that power is changing before our eyes.

That can make for some terrific investment opportunities. During this appearance on Motley Fool Live, recorded on Feb. 11, Motley Fool Co-Chairman and Chief Rule Breaker David Gardner and Industry Focus host Nick Sciple discuss the size and scale of the renewable energy sector, and talk about two promising companies in that space that investors should be watching.

 

Nick Sciple: Absolutely. The last theme I wanted to talk about is renewable energy and two very different picks again here I think a lot of people would see how renewal energy fits under this Rule Breaker universe important emerging industry. We got NextEra Energy (NEE 0.53%) and SolarEdge (SEDG 3.24%), a utility and a component manufacturer. How do you think about renewable energy as an investment theme? Then talk about the differences between these two companies and the way they are playing into that theme.

David Gardner: Well, thank you for teeing it up that way, Nick, I mean, what you're showing us is that there is a wide disparity. It's such a big industry and a big opportunity that you have totally different players doing totally different things. All still early stage. I mean, most of the world's energy continues to come from fossil fuels. But looking backward from the future, how can you and I not conclude that most of the world's energy in the future will come from the sun, which is the most powerful source in our solar system. It always was. But only now are we starting to develop the technology that can harness that along with a human consciousness and an appreciation for how to make that work when we're used to digging stuff up in the earth. I mean, it's such an obvious, to me, place that the world's energy is headed. It can't get there all at once. It's still inefficient in a lot of ways it needed some government backing in order to make, Germany spent a lot of its own money to make solar work or to make wind work. There are a lot of forward-thinking forces that are going to make this real. But yeah, the two companies you mentioned, NextEra Energy, US companies started out as Florida Power & Light. That's still a big part of the business, but they used that big utility, that big Florida utility, they started peeling off some of their funds and investing in wind and investing in solar. It's a combination NextEra Energy and the ticker symbol is NEE. I first recommended it in January of two years ago. We've had it for a couple of years. It's about a double, which considering it's largely a utility, that's not a bad move at all, we've well-crushed the market with that company. Today, NextEra Energy is literally the number one player worldwide for profit in wind and solar. How can you not love that? What's not to love there and so love it. Yeah, then on the other hand, we have an Israeli company that makes a component of solar panels and the stock has been even better than NextEra Energy. The company's name is SolarEdge, the ticker symbol is SEDG if you are a Motley Fool Stock Advisor member, you are probably pretty happy with this one because we've recommended and rerecommended it a number of times and the stock has basically gone up. It's tripled in just a brief time it had since September 2019. Really briefly, when you have the solar panel, which one day I look forward to having, I don't have this in my life yet, but I look forward to this. When you have a solar panel, it gathers the direct current from the sun that needs to be converted into AC from DC to AC to work, to power your home. You need to have inverters that can change over that direct current to alternating current. That's what SolarEdge's products do. There are only a few companies, it's again sort of an oligopoly in the world. This is still early days for this industry, but they are huge volume, a real player here. Here we are two totally different companies, NextEra Energy and SolarEdge. Both of them well-beating the stock market and beautifully positioned, not just looking two years ago, but I think next two decades.

Sciple: Right, yes, so both of these in their particular niches are oligopolies, very highly concentrated markets with this opportunity for an incredible growth. We want to look for those places where the market is concentrated, where you have clear beneficiaries of that growth into the future where, versus maybe solar panels historically, we've had a little bit more challenges because those are a little bit more of a commodified market with many more competitors.

Gardner: Yes, no question. There is something to be said about it's harder to make hardware than it is to make software. I think everybody recognizes that these days, software as higher-margin, et cetera. But it turns out we still need to have a desktop computer that I'm speaking to you from today. I like hard goods around me and somebody has got to make them and those that do usually do sell it real scale and those are good businesses. I realize it can be commoditized, that's true. By the way, quick side note, just days before we recommended SolarEdge in the summer of 2019, the CEO tragically died. He had colon cancer and it had been pre-announced a couple of years earlier, he stepped down and then the next day, he died of colon cancer. Which is really sad, Guy Sella, true visionary, never will be as well-known as Elon Musk, but just a really good person and a reminder that a business is always going to be human. A quick shout out to Guy Sella, his vision, and the company that he created. We saw that we lost our CEO as we were writing up that stock recommendation. I'm so glad we went through with it. We weren't scared about that situation. You can see how great companies have great leaders who can step up and have great cultures that allow them to continue to innovate. Sometimes, there's a little bit too much of a cult of a CEO in this world people are too focused on the Elon Musks or Steve Jobs when they should be thinking about the culture that surrounds them. That probably like good soil has a lot of other really good stuff growing and we should tend to be a little bit more forgiving of losing Lebron James. There are a lot of other good basketball players. So to me, it's SolarEdge, part of its story is that reminder.