How Much Can a President Biden Do With a Republican Senate?

The President-elect could use executive power to help the solar industry shine, but stocks look overvalued at this point.
Anthony RussoNov 09,2020,14:27

As things stand, a full blue wave in Washington remains uncertain. The Democrats will retain their control in the House, but there will likely be a fight in two runoff elections in Georgia early next year to determine who wins the Senate.

Will there be more economic stimulus passed now that the election is over? We thought for months that Democrats and Republicans would put together some kind of stimulus package that would pass before the election. But that didn’t happen.

Although Joe Biden has unveiled a stimulus as part of his campaign called “The Biden Emergency Action Plan To Save the Economy”, he may have a tough time trying to pass that in a Republican-controlled Senate.

Instead, Biden will likely have to use executive power to take action.

But what can he do?

The Power to Guide Americans Through the Pandemic

Joe Biden has unveiled a plan to curb the spread of the coronavirus; Biden has said that he would do “everything possible” to ensure that Americans wear masks in public. Also, a part of his plan to fight Covid-19 includes detailed nationwide guidelines to open businesses safely and the resources needed, increase national daily testing rapidly, as well as hiring contact tracers.

“I’ll reach out to every governor in every state, red and blue, as well as mayors and local officials, during the transition, to find out what support they need and how much of it they need,” Biden has said.

Getting Covid-19 under control (something Trump and his administration has failed to do), will bode well for the general outlook of the stock market.

What Trump Has Done With His Executive Power

Looking at Trump, he has implemented a few key executive orders that have impacted stocks this year.

In August, Trump signed an executive order that gave unemployed Americans an additional $400 per week, postponed the payroll tax until the end of 2020, as well as delayed student loan payments and halted evictions.

In that same month, Trump signed an executive order to ban popular social media apps TikTok and WeChat. Although the courts halted the ban, Walmart (NYSE: WMT) has tentatively agreed to acquire 7.5% of the equity control in TikTok’s U.S. business. Also, as a part of the deal, which is pending government approval, the database software firm Oracle (NYSE: ORCL) would operate as TikTok’s cloud provider with a 12.5% stake. It’s unclear what actions Biden would take on China if he wins the presidency.

However, Biden will have the power with his executive pen to rejoin the Paris Climate Agreement, and move the country further towards a cleanerr future. Biden hasn’t been shy in attacking fossil fuel companie and has climate change and called it the “number one issue facing humanity.”

In the past, Biden has unveiled a climate plan that aims to invest as much as $1.7 trillion over 10 years into clean energy research and infrastructure overhauls. The plan would be funded by rolling back Republican corporate tax cuts. However, if the Senate stays red—this wil unlikely get passed. A compromise of some kind might be possible.

Still, Biden can take a number of measures using executive power:

What Biden Can Do if Senate Blocks Solar Plans

One thing Biden can do is order federal agencies to reverse Trump’s climate rollbacks. That includes oil and gas being firms being able to bypass state approval, the revival of fossil fuel infrastructures such as the Keystone XL and Dakota Access pipelines, and reversal of the Clean Power Plan.

A few environmental friendly orders that Biden could implement includes instructing the Secretary of the Interior to stop oil and gas leasing and fracking on federal lands, direct federal agencies to block permits for new fossil fuel infrastructure, place a ban on exporting crude oil, and stop the government from funding global fossil fuel programs.

But most importantly, if he can’t get a bill passed through the potential Republican-controlled Senate, he could declare a national emergency. That would allow him to order the Secretary of Defense to reallocate military funding for rapid clean energy development.

So Biden will have plenty of options; thus being good news for investors in the solar industry. Ahead of the election, there has been a lot of euphoria by investors in the solar space, who have been anticipating a Biden victory.

Not surprisingly valuations are high; should you consider buying before Biden potentially takes office? Let’s take a look a look at the industry and a few solar stocks.

The Solar Industry is Expected to Boom in Five Years

Even with skyrocketing valuations, the solar energy industry is still in its developing stages and was worth $52.5 billion globally in 2018, according to market research firm ReportLinker. However, it is expected to grow at a compound annual growth rate of 20.5% from 2019-2026 and hit $223.3 billion, the report said.

This year, the Invesco Solar ETF (TAN), which tracks major solar energy companies has rallied 140%.

SolarEdge Technologies (Nasdaq: SEDG)

Market Cap: $12.16 billion

While investors see the upside, stocks in the solar energy space have been up and down lately due to the uncertainty surrounding the election. But still, many have been putting a lot of their chips into SolarEdge Technologies and hoping for a sunny outcome.

Since Oct. 20 the stock is down 24%. However, I would still argue that the stock is overvalued, trading nearly more than 70 times its earnings. However, JPMorgan Chase has told investors that the stock fall is temporary and to buyback.

It may take some time for SolarEdge (Nasdaq: SEDG) to grow into its valuation, but SolarEdge is coming off a strong third-quarter beat. It earned $1.21 per share, much higher than the 82 cents Wall Street was expecting.

While the stock seems like a solid long-term bet, I wouldn’t buy until it falls to around $150 per share.

SunPower (Nasdaq: SPWR)

Market Cap: $3.46 billion

Another solar company that investors have been bullish on this year has been SunPower shares.

After struggling to do so in the prior few years, SunPower finally turned profitable again in 2019. While it reported 4 cents per share loss for the third quarter, it was narrower than what analysts were calling for.

The solar solutions provider stock is also a bit pricey, as it trades 52 times earnings.

With shares up 293% YTD, I would target a buy on the stock at $15 per share.

First Solar (Nasdaq: FSLR)

Market Cap: $9.36 billion

Another stock that might be potentially overvalued is First Solar.

In fact, Morgan Stanley went as far as saying on Wednesday that the stock is overvalued and its gains could be short-lived. Regardless if Biden or Trump won, Morgan Stanley argued that First Solar is "overvalued in all election outcomes,” as cited by Motley Fool.

To be fair, it is coming off a strong quarter but a PE ratio of 41.99 isn’t cheap. Plus, the majority of analysts project that will increase its earnings at less than 14% annually in the next five years, according to data from S&P Global Market Intelligence. However, if Biden could get his solar-friendly policies passed, that would help First Solar’s earnings grow twice as fast, most analysts believe.

That said, I wouldn’t buy the stock until it falls to around $70 per share.

Canadian Solar (Nasdaq: CSIQ)

Market Cap: $2.35 billion

One solar stock that I think investors could potentially find both solid short and long-term value in is Canadian Solar.

The Ontario-headquartered company, whose name indicates it’s not from China, actually conducts a chunk of its business in the country and Southeast Asia. And in China, Beijing this year has renewed the power subsidies to 92.36 billion yuan ($13 billion) in 2020, which is nearly 8% higher from last year. In addition to that, Canadian Solar also has several offices in the U.S. and could potentially benefit from a Biden presidency.

While the stock has been a strong gainer this year, Canadian Solar hasn’t seen much movement in the past month or so as analysts expect it to post a loss of 4 cents per share, or a year-over-year plunge of 106%.

However, with a PE ratio of just 9.55, this may be a good stock to put in your long term investment profile. Canadian Solar is a buy at its current trading levels.

Keep an Eye On Solar Stocks But Buyer Beware

While Biden may not have control over what happens with the Senate—there’s plenty he can do with executive power to help the solar energy industry.

With the industry expected to see surging growth in the next five years, investors should look at some stocks in the solar sector. However, there are a lot potentially overvalued stocks in this sector. Choose wisely.

Topics:Trump, Biden, Walmart, TikTok, WeChat, Oracle, Invesco Solar ETF, SunPower, First Solar, Canadian Solar, SolarEdge Technologies.