As solar stocks mount a comeback, here are some of Wall Street's favorite global plays

Published Sun, Jul 11 20218:31 AM EDT

Solar stocks are staging a turnaround after several months of lackluster performance. Wall Street analysts have named their top picks for the remainder of 2021. The Invesco Solar exchange-traded fund, which trades under the ticker TAN , finished the week flat after several days of volatile trading. The fund gained nearly 13% in June, snapping a four-month losing streak and posting its best month of the year. For the year shares are still down more than 14%, but the weakness follows TAN's eye-popping 233% gain during 2020 as investors piled into clean energy plays. Stretched valuations, rising rates and supply chain issues have all been factors cited for the weakness this year. "I think a healthy correction is generally understood as a good thing," said Rene Reyna, head of thematic and specialty product strategy at Invesco. "Investors are recognizing the longer term opportunity here. This is not a one-year growth story. This is, you know, potentially a multi-decade transition that's going to take place. So I think generally speaking, investors are recognizing that." Amid solar stocks' recent comeback — Enphase Energy , Shoals Technologies , Sunnova , First Solar and Sunrun are all up by double-digits over the last month — CNBC Pro scanned the Invesco Solar Fund's holdings for the stocks that are most favored by Wall Street analysts. Each stock on the list has a buy rating from more than 60% of analysts that cover the stock, as well as at least a 10% upside to the average price target. The list is based on data from FactSet. Texas-based Sunnova is one of the names on the list, with 80% of analysts holding a buy rating on the stock. Raymond James upgraded the stock from outperform to strong buy last Wednesday, arguing that investors' concerns over the potential impact of rising rates are overblown. Analyst Pavel Molchanov said the company has secured better financing terms this year compared with the last two years, and called the stock's dip this year "irrational underperformance." Raymond James has a $50 target on the stock, which is about 37% above the stock's Friday closing price. Goldman Sachs is even more bullish and envisions Sunnova hitting $57. The firm also holds the solar company on its conviction buy list. Analyst Brian Lee said that valuations for residential solar companies including Sunnova are conservative given the growth opportunity ahead. "We believe valuation which reflects 3-5 years of growth for an opportunity that is as early-stage and secular as rooftop solar appears quite conservative," he wrote in a recent note. Goldman is also bullish on fellow residential solar company Sunrun, alongside the majority of Wall Street analysts. According to FactSet, 84% of analysts hold a buy rating on the stock. The average price target is just shy of $77, which is roughly 46% above where the stock ended the week. JPMorgan recently pointed to Sunrun and Sunnova as top picks for the second half . "We turn incrementally positive on global alternative energy sector into H2'21," the firm said in a note. "We see numerous positive catalysts between now and the end of the year, which, in our view, will support the share price performance of the alternative energy sector." Morgan Stanley, meanwhile, called Sunrun the "most compelling clean energy stock" across its clean energy coverage. "Sunrun is a beneficiary of several megatrends: rising utility costs and falling clean energy and storage costs, grid reliability impacts from climate change and consumer demand for clean energy," the firm noted recently. Shoals Technologies is another name Wall Street likes for the second half, with 75% of analysts rating the stock as a buy. The company provides electrical balance of system or EBOS solutions for solar energy projects in the U.S., which includes parts like cable assemblies, junction boxes and transition enclosures. Piper Sandler recently initiated coverage on the stock with an overweight rating, saying it's well-positioned to benefit from greater solar adoption. "With best-in-class operating margins, best-in-class growth, and limited competition, we view SHLS as a core holding for energy transition investors," analysts led by Kashy Harrison said. He has a $43 target on the stock, which implies 22% upside from Friday's closing price. Guggenheim is also bullish on the stock, saying the company remains on a "stable growth path with peer leading visibility," while adding that impacts from supply chain disruptions should be minimal. The firm has a $46 target on the stock. Hannon Armstrong , which finances carbon reducing and clean-energy projects, is another bet for the second half, according to analysts. Across Wall Street, 60% of firms rate the stock as a buy. Cowen recently named the company its top idea across small- and mid-cap companies due to a flexible business model and "strong moat in niche energy efficiency and renewable financing." "Yields have continued to rise for the investment portfolio, and we see the company's cost of capital declining at a pace that can mitigate rising interest rates," said analysts led by Jeffrey Osborne. The company's yield currently stands at 2.49% and the stock, which has gained nearly 200% over the last three years, is one of the few names in the clean energy space for income-seeking investors. VanEck portfolio manager Shawn Reynolds said the stock has been a winning bet for the firm. "They're really great at finding great projects...they are not about growth for growth's sake — they're investing for returns. It's as simple as that," he said. The company's investment portfolio includes a public-private partnership to upgrade and operate the University of Iowa's energy and water infrastructure with emissions-reduction technologies in mind. Wall Street analysts are also bullish on international companies including Grenergy Renovables , Hanwha Solutions Corporation and Xinyi Energy Holdings Limited . "At some point the market is going to recognize that perhaps the selling is overdone," said Invesco's Reyna. "This is just a little blip in the road, if you will, and we should see recovery and then your longer term positive growth trends within this space." - CNBC's Michael Bloom contributed reporting.

A worker installs polycrystalline silicon solar panels as terrestrial photovoltaic power project starts on November 17, 2015 in Yantai, China.

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Solar stocks are staging a turnaround after several months of lackluster performance. Wall Street analysts have named their top picks for the remainder of 2021.