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3 Buys in This Year's Renewable Energy Rally

This year's gains in Renewable Energy Group (REGI - Get Report) have been nothing short of stellar, with the stock rising by more than 147%. But this is just another market example of a company that has been largely undervalued, rather than one that is posting an over-extended run. In fact, the growth assets scheduled to come online suggest the company remains undervalued despite that run higher.

In 2012, the company achieved $1 billion in annual revenue for the first time and could soon be seen producing as much as 25% of the total supply in U.S. biodiesel markets. Annual capacity levels are currently seen at nearly 250 million gallons, but ongoing construction projects will soon bring these volumes near the 400 million gallon mark. The latest rally in REGI has been massive, but any downside retracements from here should be viewed as a new opportunity to buy given this positioning.

Next, we look at SunPower (SPWR - Get Report), which is set to add to its growth in residential markets. Solar energy stocks have seen some well-documented volatility in the last few years, but there are reasons to believe most of the carnage is behind us. SunPower's panel efficiency is expected to reach an industry-leading 23% by 2015, along with a 35% reduction in power generation costs.

SunPower has seen an even more impressive, momentum-fueled rally (of more than 290%), but we are still well-below the 2007 highs and the company is positioned to assume a commanding position in the sector for years to come.

Last, we look at a less conventional clean energy choice in Valero (VLO - Get Report), which is now the third-largest producer of ethanol in the U.S.

Known more for its production in traditional refineries, recent acquisitions in bio-refineries set the company on a path to enter into new markets (key progress has already been made in wind and algae farms). Transitions of this nature cannot be made overnight, but for investors looking for large-cap exposure to the renewable energy space, recent changes at Valero present an interesting alternative.

Furthermore, Valero works better as a contrarian play, after its large drop-off in the second quarter put its year-to-date gains just above 4%.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Richard Cox is a university teacher in international trade and finance, focusing primarily on macroeconomics and price behavior in equity markets. His articles appear on a variety of websites, including MarketBulls.net, Seeking Alpha, FX Street, and others. Investing strategies are based on technical and fundamental analysis of all the major asset classes (stock indices, currencies, and commodities). Trade ideas are generally based on time horizons of one to six months.
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