Climate change has been an especially hot topic in recent weeks thanks to the 21st Conference of the Parties (COP21) in France, which just wrapped up. The event included negotiators from nearly 200 countries and birthed a new international agreement to limit global temperature rises (although critics say the plan is “short on specifics”).
A core part of the agreement is a pledge to cut emissions, as the burning of fossil fuels like coal, oil and natural gas has increased the concentration of carbon dioxide (CO2) in the atmosphere. Levels reached a record high earlier this year.
Higher temperatures are just one side effect of this problem — which is also linked to melting ice caps, rising sea levels and more extreme weather, to name a few. Already, the 21st century has seen 13 of the 14 warmest years ever. And 2015 is looking to set yet another record.
COP21 was so important because it aimed to address the big question of “how” with regards to the cornerstone of any fight against climate change. But even though the policies are complex, the general course of action is quite simple: Stop burning fossil fuels.
From an investment standpoint, that would seem to make the alternative energy sector appealing, yet the need for more renewable energy hasn’t always translated into profits or stock returns. Still, a few environmentally focused stocks have better prospects than their peers.
Here’s a look at three climate change stocks to buy.
Climate Change Stocks: Ormat Technologies (ORA)
Ormat Technologies (ORA) is facing climate change head-on, as evidenced by its actions and words. For starters, Ormat focuses on geothermal technology and recovered Energy Generation (REG), producing more than 500 MW of renewable energy in the U.S. alone.
Earlier this month, the renewable energy also company joined 140 countries in the American Business Act on Climate Pledge to “demonstrate an ongoing commitment to climate action and to voice support for a strong outcome to the COP21 Paris climate negotiations.”
While we’ll have to wait to see if the support of COP21 specifically pays off, it’s already clear that the company’s focus on renewables has. Ormat is the only vertically integrated company with its specific focus. And while earnings have fallen short of Wall Street’s expectations in recent quarters, that hasn’t hindered the stock. Since the start of the year, shares of Ormat stock have gained around 25%.
And thanks in part to recently announced acquisitions and partnerships, analysts seem optimistic about the future. Ormat’s consensus estimates have been chugging higher, with earnings expected to expand by 24% this year and another 17% expansion in 2016.
Climate Change Stocks: First Solar (FSLR)
Solar energy has been a highly anticipated space for years now, but the sector has largely been a disappointment from an investment perspective thanks to a lack of profitability and a reliance on subsidies.
Investors in First Solar (FSLR) have been on a bumpy ride in recent years — and 2015 has been no exception. The good news is that the bumps have been more up than down, with FSLR booking 30% year-to-date gains so far.
That run comes despite an ugly 11% one-day sell-off last week. Investors were unimpressed with the company’s 2016 guidance — especially with regards to margins. Next year, First Solar expects gross margins between 16% and 18% vs. this year’s 25% thanks in large part to a shift towards module sales.
Still, First Solar is a leader in a maturing solar industry, while the company’s low-cost focus could be key to the accessibility of solar energy. In the most recent quarter earnings report, production grew by 46% year-over-year, leading to a sales increase of 43%. The company also upped its 2015 guidance and upped its estimate for potential booking opportunities.
For the cherry on top, some analysts believe that the company’s increased focus on modules will actually lead to higher margins over the long term, making the recent selloff smell of panic more than a lack of potential.
Climate Change Stocks: Tesla (TSLA)
Out of the three stocks on this list, Tesla (TSLA) is likely the most well-known … but is actually the worst performing so far this year. Since the start of 2015, shares of Tesla are flat.
Still, there’s a lot to like about the maker of electric vehicles if you peer a bit down the line. Competition is a natural concern, but Tesla boasts a level of innovation and brand respect that names like Ford (F) simply can’t compete with.
Tesla is expected to launch the more affordable Model 3 in the next couple of years and has an ambitious target of delivering 500,000 vehicles per year by 2020 — two promising catalysts that don’t even consider the potential stemming from batteries alone.
The company is expected to post a pretty wide loss this year as it expands product capacity dramatically, but things are on track to do a complete 180 next year. Tesla is slated to earn $1.81 on the heels of this year’s expected $1.26 loss … while the high end of earnings estimates currently sits at $4 per share for 2016.
You don’t necessarily have to wait for 2016 or 2017 to see some substantial Tesla bullishness either. Recently, shares jumped as Credit Suisse posted a bullish note on the company, maintaining its “outperform” rating and a $325 price target that translates to 46% upside — in line with the month-over-month that would come as long as Tesla hits the the low-end of its fourth quarter delivery guidance.
Alyssa Oursler is based in San Francisco and writes about technology, investing, gender and entrepreneurship. Her work has appeared on Forbes, Business Insider, MSN Money and more. You can follow her on Twitter here or check out her personal site here. As of this writing, she unfortunately did not hold a position in any of the aforementioned securities.
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