Climate change is a hotly debated and highly politicized situation. You have some that believe the world is going to be ruined within our lifetime and others that think it’s a complete hoax. Outside from the extremes, there are many people in the middle that know it’s a problem, they just don’t know how big the problem is. So what does that have to do with stocks to watch?
Whether one embraces climate change or not, it’s hard to argue that the weather hasn’t become more volatile over the last few years and decades. That doesn’t mean there weren’t big storms before, but the increase in both frequency and intensity has created a lot of disruptions so far this century.
When it comes to public companies, that presents a new risk for many of them. Increasingly, companies are also putting those climate-related risks in their disclosures. And those that haven’t may have to start.
Let’s look at seven companies that could feel the impact.
- Delta Air Lines (NYSE:DAL)
- American Airlines (NASDAQ:AAL)
- Exxon Mobil (NYSE:XOM)
- Progressive (NYSE:PGR)
- Coca-Cola (NYSE:KO)
- Vail Resorts (NYSE:MTN)
- Utilities Select Sector SPDR Fund (NYSEARCA:XLU)
Stocks to Watch Based on Climate Change: Delta Air Lines (DAL)
When we think of climate change, our minds often go to different scenarios playing out. For instance, rising coastal waters or how it may negatively impact energy companies.
However, more volatile weather has the ability to severely disrupt the travel industry. When that deep freeze swept through Texas and other parts of the south in February 2021, it delayed or cancelled thousands of flights. A few weeks earlier, a deep freeze in the Midwest also cancelled thousands of flights.
These cancellations are a major headache for both passengers and the company. Not only does Delta face the issue of potentially more volatile weather, but also the environmental issue from a political perspective. In other words, a “more green” policy could add costs to the company’s operations.
“Increases in the frequency, severity or duration of thunderstorms, hurricanes, typhoons or other severe weather events, including from changes in the global climate, could result in increases in delays and cancellations, turbulence-related injuries and fuel consumption to avoid such weather, any of which could result in loss of revenue and higher costs.”
American Airlines (AAL)
If Delta faces potential risks from climate change, American Airlines must be included in the list as well. Not only does the company have a weaker financial footing and worse margins than Delta, it also has more traffic.
Excluding the pandemic year (2020), American Airlines has handled the most annual number of passengers in each of the last five years. That’s 2015 to 2019. In four of those years, Delta was the No. 2 carrier.
Globally, these were the only two airlines to have more than 200 million passengers in 2019.
Those numbers help illustrate the logistical hoops these companies have to jump through on a daily or even hourly basis. So when there’s a big storm or a natural disaster this disrupts these routes, American Air and Delta are sure to feel the impact.
As the world’s largest carrier by passenger volume, American Airlines has to be on our list of climate stocks to watch.
Stocks to Watch Based on Climate Change: Exxon Mobil (XOM)
When investors think of climate change and stocks, Exxon is always a go-to thought. The company has had constant run-ins with the climate-change crowd, mostly from a political standpoint. It doesn’t help that the company has its own team of scientists and constantly finds itself in controversy.
But that may be starting to change.
After a push from activists, the company is electing three new board members, taking over one-quarter of the board. Exxon has previously refrained from making zero-carbon commitments and investing meaningfully in renewables vs. fossil fuels.
That could change after the latest board shakeup. And if it doesn’t, at the very least, it’s disclosures will change.
After the recent meeting, “shareholders went against Exxon and supported the disclosure of political- and climate-lobbying activities.”
Progressive (PGR)
Insurance companies have found themselves on the hook in a big way due to drastic changes in the weather. As we’ve seen more drastic swings in the weather, we’ve seen more drastic changes in the intensity of these storms. That doesn’t mean intense storms didn’t happen until recently, but the frequency in which they occur is hard to deny.
Hurricane Harvey, Sandy and Katrina are just a few of the storms from this century that have created outright disasters across the country. But it’s more than hurricanes. Intense blizzards, hail, flooding, droughts and forest fires seem to be increasing in frequency and intensity.
Progressive is one of many companies in the insurance space, but Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B), Allstate (NYSE:ALL) or several others could have been mentioned too.
Thankfully for insurance companies, they can raise premiums across the board to help offset the costs with one region’s misfortunes. However, if these problems continue to escalate, all insurance companies could face headaches in the future.
Stocks to Watch Based on Climate Change: Coca-Cola (KO)
Coca-Cola is not a name that many investors would have expected to see on a list of stocks to watch for climate change.
When we think of Coca-Cola, we think of the soda — Coke. But the company is so much more than that. Aside from its soda products, there’s also the company’s other brands: Dasani, SmartWater, Minute Maid, Powerade, Fairlife, Schweppes, Vitamin Water and more.
All of these products have one common denominator: Water.
While one doesn’t normally consider the climate change impact to high-quality water, that’s exactly a risk that Coca-Cola faces. However, it’s something the company takes seriously. It formed its first environmental team in 1980. You can find its climate page here, for those interested.
From the company’s SEC filings: “Water scarcity and poor quality could negatively impact the Coca-Cola system’s costs and capacity… As a result, the effects of climate change could have a long-term adverse impact on our business and results of operations.”
However, should climate change disclosures become more robust in the future, Coca-Cola may need to become more specific on the risks.
Vail Resorts (MTN)
It’s perhaps no surprise to see Vail Resorts on the list. The company has built its portfolio on owning successful vacation properties and operating ski resorts. Obvious disruptions to that business could create a real hassle for Vail.
While the company does have other sources of income (golf, for example), a disruption to the ski business would be a huge blow for this company.
Vail does operate resorts, hotels and condominiums that surely do well during the summer months (again, for golf). But the hospitality side of the business would be hit if the ski business fell off a cliff, (no pun intended).
A warm winter or difficulty making snow can really turn people off from hitting the slopes. Of course, diehard skiers will get their fix, but a good season is what drives in the revenue.
From the company: “…Early season snow conditions and skier perceptions of early season snow conditions can influence the momentum and success of the overall ski season… the potential effects of climate change could have a material adverse effect on our results of operations as warmer overall temperatures would likely adversely affect skier visits and our revenue and profits.”
Further, it’s not just warm winters or a late start to the ski season that can disrupt business. Forest fires can too, and as those become more prevalent it becomes a risk harder to ignore for Vail.
Stocks to Watch Based on Climate Change: Utilities Select Sector SPDR Fund (XLU)
Don’t look at a sector pick as a cop out from landing on a single utility stock. The truth is, the entire sector faces an increasing risk from climate change and therefore, picking any one utility company is difficult.
Whether that’s increasing forest fires out West, “surprise” hurricanes in the East or heat stress in the Midwest and South, these companies face increasing risks as a result of climate change.
Just think about the situation in Texas. In February, the state suffered a deep freeze that completely paralyzed the grid. Now as we enter summer, ERCOT (the grid operator) is urging conservation to avoid blackouts. In California, the regions in the north face constant blackouts due to forest fires and dry conditions.
Here’s a take from Moody’s (NYSE:MCO) regarding the sector and climate change:
“The increasing frequency and severity of extreme weather events and chronic stresses driven by climate change have particular implications for the utility sector.
…Heat stress will likely have the greatest impact on utilities in the Midwest and southern Florida, reducing power grids’ efficiency and increasing expenditures. The Western U.S., specifically the Rocky Mountain states and California, is the region most exposed to long-term water stress… In other areas of the country utilities are exposed to extreme rainfall and flooding, which are responsible for many power outages.”
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.
