With the energy transition upon us, solar stocks offer investors a chance to grab a piece of a fast-growing market. Solar energy output rose 22% in 2021, but that’s only expected to accelerate over the next few years. According to the International Energy Agency, output will need to rise 25% annually by 2030 to reach our net-zero targets. So, for long-term investors, it makes sense to add solar stocks to their portfolios.

The industry is relatively crowded, as companies vie for a piece of the ever-growing pie. So, there are a few things to look for when it comes to choosing energy transition stocks. One is diversification— solar isn’t the only way we’ll get to net zero, there are other promising renewables out there as well. From wind to green hydrogen, there are many clean energy technologies driving growth. Companies that are working with a portfolio made up of a handful of different businesses tend to be less volatile than those that focus on a single form. They don’t see the same bumpiness one specific area, such as solar, might see, and may also have some cushion when things are difficult.

For pure-play solar stocks, it’s all about differentiation. Solar technology isn’t brand new, but there are still plenty of kinks to work out. From how to store energy for use on grey days to how to build lasting hardware, there are plenty of ways to stand out in the industry. These differentiators are how solar companies will grow their market share and increase prices, so they’re important to consider when choosing a long-term pick.

Enphase Energy (ENPH)

Enphase Energy’s (NASDAQ:ENPH) microinverter technology is what makes it one of the best solar stocks to watch. The company’s aim is to make solar power more efficient and reliable, with microinverters that allow the panels to work even if one part is blocked. The company is also working on technology that would allow users to create their own mini-backup grid that can run on solar, even without a battery. 

The company also makes battery storage systems complete with software allowing users to control and monitor their solar power. This is all possible thanks to Enphase’s microinverter, which acts as the so-called “brain” of the operation. 

Growth has been strong so far at Enphase, but shares have long been priced for perfection. That means expectations are high for Enphase, and the company’s most recent forward guidance simply didn’t live up to the hype. Both top line and margin growth are expected to be relatively flat in the second quarter. That’s to be expected, considering current market conditions with rising costs and an economic slowdown in the cards.

There’s likely some more volatility ahead as Enphase navigates challenging waters. But for investors who can stomach some ups and downs, this could be an attractive entry point. 

Brookfield Renewable (BEPC)

Brookfield Renewable (NYSE:BEPC) isn’t exclusively a solar stock. Rather, it’s one of the best energy transition stocks for investors looking for a bit more diversification.

Brookfield’s business is made up of several different low-carbon energy segments including hydroelectric, wind and solar, plus a handful of energy storage facilities around the world. While it’s not a solar pure-play stock, it is a renewables pure-play, which should position the company well, as investors seek out ways to play an accelerated shift toward green energy.

Higher power prices have been a boon for the company’s cash flow. Brookfield has been able to produce organic growth, on top of the growth seen via its strategic acquisitions. Brookfield benefits from power contracts linked to inflation, which means the current environment hasn’t been quite as damaging to Brookfield as it has to some of the other companies on this list. 

Brookfield’s also been putting its excess cash to good use as well. The company has been selling off parts of the business that aren’t contributing to its growth story and then funneling those funds into more profitable avenues. It’s also sending some of those funds back to investors, with a dividend yield just shy of 4%. 

First Solar (FSLR)

First solar (NASDAQ:FSLR) is a solar energy manufacturer and the reason it’s one of the best solar stocks is its proprietary thin-film solar panels. Their design means they perform well in difficult conditions like low-light, and they’re also a cheaper option on a per-watt basis. This should be help the company differentiate itself as the industry continues to develop. For those looking to cover large surfaces, particularly in tough conditions, First Solar is likely to be the first option to be considered.

The company is also sitting on a relatively solid financial foundation, a rarity in the industry. This is particularly important at present, as we march into a period of tougher economic conditions. When peers start to struggle, First Solar should have the financial flexibility to maneuver, which could mean it has the capacity to thrive on the other side of the hardship. 

First Solar is also in the process of growing its manufacturing capacity. While costly, this should offer a bump to revenue and profits in the years ahead, making it a good pick for long-term investors.