The climate change topic seems to be heated these days, eco-friendly goods and services grow in demand and more people interested in renewable energy. So, let's look at the opportunities this new green world has to offer to investors.
We gathered green public companies in various industries (energy, cars manufacturing, food and farming) that you can consider to add to your portfolio to jump on the green trend and make some money off it.
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“Change is coming, whether you like it or not.”
The trend for renewable energy sources isn't new. Countries with rich water recourses were producing hydroelectricity since ancient times, but only recently humanity speeded up the progress with the discovery of new technologies and significant improvements of the old ones.
Renewable energy is the fastest-growing energy source in the United States, increasing 100 percent from 2000 to 2018, according to c2es.org. Canada, European Union and China aren't far behind. Countries like Norway show incredible sales of electric cars, even higher than gas and diesel vehicles, due to special tax benefits and other government policies. Statistics shows that solar energy in the U.S. still accounts for only 1.6% of total electricity generation, but the market is growing rapidly.
Not only countries and governments are concerned with climate change and environmentally friendly technologies, large multinational corporations are following the trend, as well as many smaller firms and regular people.
The trend is obvious at this point, good old days of the fossil fuels slowly become history (although it'll still take decades to go green for the whole planet), so is it possible to make some money off this green transition?
What is Green Investing?
Green Investing, or eco-investing, is when an investor buys shares of eco-friendly companies. Those can be environmentally friendly energy companies, electric car manufacturers, food producers to some extent, etc.
One way or another, those socially responsible companies claim to operate with the goal of adopting new technologies that decrease carbon dependence and enforce modern sustainable alternatives.
It's worth to note that there is a difference between socially responsible investing (SRI) in general, and eco-investing. Socially responsible companies are engaged in various kinds of charities and ethical practices (consumer protection, human rights, racial or gender diversity, etc.) while green investing focuses on sustainable environmental issues.
Is Green Investing Profitable?
Well, this is the core of the whole problem, isn't it? If the green investing was certainly and always more profitable then the old and dirty one, business and capitalists would go green in a heartbeat. The fact that many of them are still resistant to the idea of climate change tells us that right now, unfortunately, it's rarely profitable. The old equipment is already in place, all the processes are set up in the old way, so it's expensive to change the whole system, not to mention that even after such a change the business might not even stay profitable. That's why many of the green initiatives are enforced and promoted by non-profit organizations, concerned citizens, and governments.
However, in the long run, certain green business could be quite profitable, and there is a rising number of potential customers who reject to buy products that were made in the old way.
Are Such Investments Risky?
Tsinetwork.ca brings up a good point that green investing can be risky because such companies often heavily rely on government subsidies. If the current policies change, or if the budget is tight, such a company may be forced to close its operations. Looking into annual reports of those companies can help to determine whether they can survive with lower or no subsidies at all, however, such research might not be possible as some of the data isn't public. In addition to the external threats, such a company might have internal weaknesses in management (as any other company), so they should be analyzed as careful as any other business and this analysis has to be done for a long-term perspective.
What are Green Stocks and Green Companies?
Green stocks are a broad category of companies that invest in environmentally friendly alternative energy sources. Those are the companies that deal with solar power, wind power, geothermal or wave power.
Green stocks aren't limited to only energy producers and providers.
In a general sense, any company that works towards none or minimal negative impact on the global or local environment can be called a green company or a sustainable business. Newsweek published green rankings of US and global companies, but those aren't quite the companies that we cover here. It's great that many huge corporations are moving towards environmental responsibility, but it doesn't mean that buying their shares will help an investor to enter the green market.
We'll focus on companies that operate within the green industry.
When it comes to green investments, the most obvious choice are energy companies. The energy business isn't the easiest and the most profitable industry. There are many government-sponsored corporations or companies with a significant government ownership share. Historically, energy companies tend to form oligopolies and monopolies, however, there are a few independent green energy companies that worth investing in. Here is a list of such public companies made by Investopedia with a few additions:
- Ballard Power Systems (BLDP.TO) - proton exchange membrane fuel cell products manufacturer
- Canadian Solar (CSIQ) - solar PV modules manufacturer
- Calpine (Private) - natural gas and geothermal resources
- Enphase Energy (ENPH) - home energy solutions
- SolarEdge Technologies (SEDG) - solar power harvesting and monitoring solutions
- Sunrun (RUN) - provider of residential solar electricity
- TransAlta Renewables (RNW.TO) - renewable power generation facilities
- U.S. Geothermal (HTM) - geothermal energy company
- Vestas Wind Systems A/S (VWDRY) - manufacturer, seller, installer, and servicer of wind turbines
- Vivint Solar (VSLR) - solar energy company
- Ormat Technologies (ORA) - a provider of alternative and renewable energy technology
- Orsted A/S (DNNGY) - a power company based in Denmark
- JinkoSolar (JKS) - world's largest solar panel manufacturer
- NextEra Energy Partners (NEP) - renewable energy company
Also, as an alternative, you can invest in an ETF that is concentrating on clean energy companies.
iShares has such a product called: “iShares Global Clean Energy ETF” (ICLN).
Electric Vehicle and Parts Manufacturers
Electric car producers play an important role in the global reduction of oil consumption. Tesla is leading the race, forcing all major car producers to offer at least one hybrid or fully-electric car to its customers:
- Volkswagen has its e-Golf and e-Up!
- Renault offers Twizy, Zoe, Fluence Z.E. / SM3 Z.E.
- Peugeot made i0n
- Nissan sales Leaf
- Mitsubishi developed i-MiEV
- Mercedes-Benz: EQC, B-Class Electric Drive
- Kia: e-Niro, Soul EV
- Hyundai: Kona Electric, Ioniq Electric
- Honda: Clarity Electric, Fit EV
- Ford: Focus Electric
- Fiat: 500e
- Citroën: C-Zero
- Chevrolet: Spark EV, Bolt EV
- BMW: i3
- Audi: e-tron
Nonetheless, buying shares of those leading car producers only because they released a few new eco-friendly cars can't be called green investing, as the major portion of its production still consists of regular petrol-based cars.
The EV market is expanding faster than expected, but today only Tesla can be considered a company that produces only electric vehicles at a significant scale. General Motors, Ford, and BMW are recommended by morningstar.co.uk in addition to Tesla as stocks to consider for the electric car revolution.
Plus, electric cars require a number of specific components (like lithium batteries), so companies that supply such components might also be considered as promising green investments. Here are some of those companies with their ticker symbols:
- Amphenol Corporation (APH) - producer of electronic and fiber optic connectors
- Aptiv (APTV) - auto components supplier
- Albemarle (ALB) - the largest lithium producer in the world
- BorgWarner (BWA) - components and parts supplier
- Constellium (CSTM) - aluminum semi-products
- Delphi Technologies (DLPH) - electrified powertrain products
- Edison International (EIX) - one of the largest investors in EV infrastructure
- Visteon (VC) - automotive electronics supplier
- SQM (SQM) - second largest lithium producer globally
- Sempra (SRE) - energy infrastructure
Food: Retail and Farming
There are a few publicly traded retailers and food manufacturers that you can add to your green portfolio. Here is a list of organic and natural food companies, and owners of organic farms:
- Calavo Growers (CVGW) - avocados and other produce
- United Natural Foods (UNFI) - food wholesaler
- Limoneira (LMNR) - lemons, avocados and oranges
- Lifeway Foods (LWAY) - farmer cheese, kefir
- NBTY (NTY) - manufacturer of vitamins and nutritional supplements
- Sprouts Farmers Market (SFM) - supermarket chain
- SunOpta (STKL) - organic food company
- The Hain Celestial Group (HAIN) - foods and personal care products
- Tofutti (TOFB) - soy-based, dairy-free foods
- Whole Foods Markets (WFMI) - multinational supermarket chain
There are many other interesting agriculture stocks to consider, suredividend.com has a few lists of such high-quality green stocks which pay decent dividends. They also provide a brief analysis of each company.
Fool.com brings out a valuable point that many natural and organic stocks done poorly in the past because the competition in retail is intense. Anyone can grow organic goods given enough time and incentive. Big players, such as General Mills and Danone, just bought a smaller organic food companies to strengthen their presence on the new market, while other major companies like Walmart, Kroger, and Costco also expanded their assortment to include more organic.
According to Organic Trade Association, organic food spending are growing, as well as the market share of such products, but this market isn't unlimited and it's still associated with rich people and middle-class.
Lastly, with the legalization of marijuana in Canada and in other countries, marijuana stocks could be considered as “green”, but the volatility of the Marijuana Index seems to be too wild at this point to consider it as a safe investment.
Pollution & Waste
Companies that deal with waste and pollution play a critical role in ensuring that our planet stays habitable for future generations. It's not easy to find independent publicly traded companies with a significant market capitalization in this business, but those companies do exist and here is a few of them:
- Allied Waste Industries (AW) - waste collection businesses, recycling facilities, and landfills
- Waste Management (WMI) - waste management, and environmental services company
- Covanta Holding (CVA) - sustainable solutions
- Fuel-Tech (FTEK) - technologies to enable clean efficient energy
Alternatively, there are a few funds that manage a number of such stocks altogether, for example Market Vectors Environmental Services ETF (EVX), which showed a slow, yet stable growth.
It'd be interesting to research such companies in China, as this country is known to have issues with pollution, but it's hard to find a publicly-traded company in China that fights that and doing so for profit, although some indirect investment opportunities could be considered. For instance, companies that make anti-pollution masks Chipu, Piggy, Yaocheng, Weikang, Fengli and others.
Plus, face mask producers are a good bet because of the recent issues with the Coronavirus.
Companies that provide clean water to the population are also worth considering as green investments. Many of those companies are tightly connected to the federal or local government and surrounded by regulations, often their main goal isn't to make money, but to ensure that citizens have access to clean water resources. That being said, some of those companies showed impressive growth in the past and they tend to pay decent dividends. You can check out TheStreet's rating of water utility stocks to find a few investment opportunities and this list from fool.com which they updated in 2016.
American Water Works Company (AWK) in particular deserves additional attention. Founded in 1886, this company manage municipal drinking water and wastewater systems in many states. In 2008 it had an initial public offering (IPO) on the NYSE. From that time its stock stably grew from $21 to $135 and they paid dividends. This company is well diversified geographically and it was profitable for most of its history.
As you can see, there are many opportunities for an investor to add a few green stocks to the portfolio.
Some of them show great returns while others perform quite poorly. This market in developed countries is definitely growing, as well as in some developing nations, however, in terms of the profitability and payback period, many of these investments are still inferior to companies that use old and dirty production methods.
Local and federal governments introduce initiatives and taxes like carbon tax to fight for a habitable climate, but such policies cause criticism and arguments. Politically speaking, a number of governments (Norway, Germany, Canada, China) made a clear choice to implement policies that would speed up the development of green technologies, and a significant portion of people in those countries support that. Therefore, it might be smart to consider companies that work in those countries as long-term investments. In any case, there is certainly a place for green companies in the market, so it's a matter of picking the right company and a profitable green industry.