7 Stocks at the Forefront of Climate Change
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Concerns over resource scarcity as well as climate change have been getting increased attention. Covid-19 has also led to more discussions on avoiding future crises on a global scale, especially regarding the environment. Consumer behavior typically has a significant effect on Wall Street. It’d be fair to say 2020 became the year of electric vehicle (EV) and alternative energy stocks when many saw vertiginous rises. Today’s article, therefore, introduces seven stocks at the forefront of fighting climate change.
NASA highlights the Earth’s surface temperature has been rising since the late 19th century. However, most of the warming has occurred in the past 40 years, due to higher carbon dioxide emissions. According to the Intergovernmental Panel on Climate Change (IPCC), “climate change is already affecting people, ecosystems and livelihoods all around the world.”
The scientific community concurs on the facts surrounding climate change. Yet policy makers as well as the general public, not only in the U.S. but also globally, do not necessarily agree on the most appropriate course of action. Meanwhile, many companies work on commercially viable alternative energy projects, products and services.
President Joe Biden’s administration has put the environment high on the agenda. For instance, the aim is for our electricity production to be carbon-free by 2035. Achieving net zero-emissions by the middle century is also a top priority. We can expect similar policy targets in other countries, too. As a result, many companies are likely to benefit from a range of favorable tax and regulatory changes.
Against that backdrop, here are seven climate change stocks to buy:
- Blink Charging (NASDAQ:BLNK)
- Enphase Energy (NASDAQ:ENPH)
- First Solar (NASDAQ:FSLR)
- iShares Global Clean Energy ETF (NASDAQ:ICLN)
- Lithium & Battery Tech ETF (NYSEARCA:LIT)
- Ørsted (OTCMKTS:DNNGY)
- Renewable Energy Group (NASDAQ:REGI)
Climate Change Stocks to Buy: Blink Charging (BLNK)
52-Week Range: $1.30 – $64.50
1 year % change: Up over 2,600%
Electricity charging companies form a crucial part of the puzzle in increased adoption of EVs. Florida-based Blink Charging operates networked EV charging services. It also offers both residential and commercial EV charging equipment. The company was founded in 2009. It operates over 23,000 EV charging stations.
Its most recent earnings showed total revenue 0f $0.9 million, up 18%. Net loss was $3.9 million, or 12 cents per basic and diluted share, compared to net loss of $2.6 million, or 10 cents in the third quarter of the previous year. Cash at the end of the quarter was $14.9 million.
“As a leader in the EV charging space, we have been systematically expanding our footprint and growing our brand recognition by capturing premium locations and establishing strategic partnerships that promote the adoption of EV use. Importantly, these initiatives position Blink for continued growth as the EV revolution takes hold,” said CEO Michael D. Farkas.
The EV charging space is likely to accommodate more than one group. With a current market capitalization of $1.5 billion, Blink Charging could potentially be one of the winners. However, its current valuation is extremely high. It is not likely to become profitable soon, either. Interested investors could wait for a further pullback toward the $25 level, or even below.
Enphase Energy (ENPH)
52-Week Range: $21.49 – 229.04
1 year % change: Up about 524%
The domestic residential solar market is growing and solar energy is one of the cheapest sources of energy in many states. Fremont, California-based Enphase Energy develops microinverter systems for the solar photovoltaic (PV) industry. Many InvestorsPlace.com readers would know “Photovoltaics is the direct conversion of light into electric power using semiconducting materials such as silicon.” Thus, ENPH’s semiconductor-based microinverter system, a plug-and-play system, converts direct current (DC) electricity to alternating current (AC) electricity.
Enphase Energy reported fourth-quarter results in early February. Revenue came at $264.8 million. A year ago it had been $210 million. Its diluted EPS was 50 cents. Cash flow from operations was at $84.2 million.
For Q1 fiscal year 2021, management expects revenue to be within a range of $280 million to $300 million. ENPH stock’s forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 92.59 and 30.30, pointing to an overstretched valuation level. Therefore, the stock could come under short-term selling pressure. However, Enphase Energy is profitable. With a market cap of about $20.6 billion, the company is likely to have many years of growth, which would mean shareholder value.
First Solar (FSLR)
52-Week Range: $29.15 – $112.50
1 year % change: Up about 65%
Dividend Yield: N/A
Favorable trends in the clean energy space have been providing tailwinds for a number of businesses, such as First Solar. The Tempe, Arizona-based company is also a provider of photovoltaic solar energy solutions. It designs PV solar modules with a thin-film semiconductor technology.
First Solar reported fourth-quarter and full-year results on Feb. 25. Net sales came at around $600 million, compared to around $900 million in Q3. Management noted the decline was due to the higher international project sales in the third quarter.
Net income of $116 million translated into EPS of $1.08. A year ago, the company’s net loss had been $59 million, or 56 cents per share.
First Solar is one of the most profitable companies in the solar industry. However, in the case of a potential increase in interest rates, its financing costs would likely increase. Competition in the solar panel business is also intense. Therefore its bottom-line growth might be limited in the coming quarters.
FSLR stock’s forward P/E and P/S ratios are 18.45 and 3.22, respectively. A potential decline toward the $65 level would improve the margin of safety for buy-and-hold investors.
iShares Global Clean Energy ETF (ICLN)
52-Week Range: $8.08 – $34.25
1 year % change: Up 147.25%
Expense Ratio: 0.46%
The recent market volatility has meant broader market jitters. Yet, despite occasional pullbacks in related shares, the alternative energy theme will continue to make headlines. Our next discussion centers around an exchange-traded fund (ETF), namely the iShares Global Clean Energy ETF. Such funds offer diversification of stock-specific risks.
The fund invests in global firms producing energy from renewable sources, such as the sun, wind and water. It also provides exposure to alternative energy technology companies that manufacture equipment with a focus on bio-fuels, hydro-electric turbines and photovoltaic and fuel cells.
ICLN, which has 33 stocks, tracks the S&P Global Clean Energy Index. Since its inception in June 2008, net assets have grown to $5.5 billion. The top three sectors of the fund include renewable electricity (33.25%), semiconductor equipment (18.56%) and electric utilities (16.94%), among others.
Around 34.7% of total assets come from the U.S., followed by China (11.23%), New Zealand (8.43%), and Denmark (7.93%). The 10 largest holdings constitute about half of the fund. Plug Power (NASDAQ:PLUG), Enphase Energy, and Verbund (OTCMKTS:OEZVY) are among the top stocks.
Over the past year, ICLN is up about 148% and hit a record high of $34.25 per share on Jan. 8. Respective trailing P/E and price-to-book (P/B) ratios are 36.66 and 3.73. A potential price decline toward $20 would make the fund more attractive for retail investors.
Global X Lithium & Battery Tech ETF (LIT)
52-Week Range: $17.83 – $74.83
1 year % change: Up about 186%
Total Expense Ratio: 0.75%
Public sentiment towards alternative energy is very positive, benefitting a number of segments, such as energy storage in batteries. The steady supply of energy is crucial and that is where batteries come into play. The Global X Lithium & Battery Tech ETF (LIT) gives access to firms in the full lithium cycle, from mining and refining the metal to battery production. Scientists and analysts concur that when it comes to batteries in EVs, lithium is more advantageous than the traditional lead-acid batteries.
LIT, which has 40 stocks, tracks the returns of the Solactive Global Lithium Index. The fund started trading in July 2010. Net assets stand at $2.84 billion. The top five names in the fund are Albemarle (NYSE:ALB), Ganfeng Lithium (OTCMKTS:GNENF), Tesla (NASDAQ:TSLA), Eve Energy and Samsung SDI. As far as industries are concerned, funds are distributed among materials (43.6%), industrials (28.3%), consumer discretionary (15,6%) and information technology (11.4%) among others.
41.1% of the companies come from China. Next in line are businesses from the U.S. (22.6%), South Korea (12.0%), and Japan (7.1%). The concentration of Chinese and U.S. companies is due to the fact that the use of green energy is booming in both countries. At present China is the largest emitter of carbon dioxide and the top coal consumer. Yet the nation has pledged to become carbon neutral before 2060. The consequences of that commitment for stocks and funds could be significant.
The ETF is down about 2% in 2021. A potential move down to $55 would improve the margin of safety. Storage is a key factor in alternative energy. Therefore, we should expect the names in the fund to make new highs during the decade.
Ørsted (DNNGY)
52-Week Range: $27.34 – $76.47
1 year % change: Up about 85%
Our next stock comes from Denmark. Ørsted is an important energy company in Northwestern Europe. It operates through three segments: Wind Power, Bioenergy and Thermal Power, as well as Distribution and Customer Solutions.
Ørsted is one of the leading names in the global offshore wind market. In late 2020, Amazon (NASDAQ:AMZN) “signed a 10-year corporate power purchase agreement” with the group, stating “This CPPA will contribute to Amazon’s target of being 100% renewable by 2030 as part of the company’s goal to reach net zero carbon emissions by 2040.” The U.S. offshore market is still in its infancy. Such a partnership with Amazon could mean future growth opportunities for Ørsted in the States.
Its most recent annual report showed an operating profit (EBITDA) of 18.1 billion DKK, a 4% increase year-over-year (YoY). Investors were pleased to see earnings from wind farms increased by 14%. CEO Mads Nipper cited, “In January 2021, we were named the world’s most sustainable energy company for the third consecutive year.”
DNGGY stock’s forward P/E and P/S ratios are 32.79 and 10.99, showing a high valuation level. Interested investors would find better value around $42.50.
Renewable Energy Group (REGI)
52-Week Range: $16.05 – $117.00
1 year % change: Up about 263%
Renewable Energy Group is focused on providing cleaner, lower-carbon-intensity products and services. It is one of the largest renewable and bio-diesel producers stateside. Its operations range from acquiring feedstock to operating biorefineries and marketing renewable fuels. The company converts natural fats and oils into biofuels that can be used in transportation, power generation, heating and industrial products.
The company announced Q4 and full-year results on in late February. Revenues declined to $548 million, a 45.3% decrease YoY. Management noted that the fall was a result of the GAAP recognition of previous biodiesel mixture excise tax credits (BTC) net benefit to revenue. GAAP net income was $27 million, or 60 cents per diluted share. At the end of the year, cash and equivalents stood at $358 million.
CEO Cynthia Warner said, “REG’s resilient business model enabled us to deliver strong financial results, with $120 million of net income from continuing operations” for the fiscal year.
So far in 2021, REGI stock is up not even 1%. Forward P/E and P/S ratios stand at 19.8 and 1.65, respectively. If you expect robust growth prospects in the biofuel space, you might invest in the shares, especially around $7o. A number of countries, like the U.S., have regulations and standards that require various fuels, such as transportation, to be blended with with biodiesel. Such legislative tailwinds are likely to add fuel to the the REGI share price in the coming quarters.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
