Governments all around the world are embracing green policies. Consequently, an increasing number of investors are developing climate-aware investment strategies. Renewable energy stocks haven’t always performed well. But solar, wind, hydroelectric and other clean power sources are coming into vogue. These investments are becoming less volatile as a result.
Millennials began the trend of investing in sustainable funds, or ESG funds. Now investors of all ages are interested in ESG options and companies are launching major green growth strategies.
Last year, investors poured record amounts of capital into funds that want to solve environmental issues, more than doubling the amount invested in 2019. ESG funds represented approximately one-fourth of the money that went into all U.S. stock and bond mutual funds in 2020. That’s an astounding increase from a 1% share in 2014.
ESG funds might get a further boost if the Department of Labor makes it easier to include them in a 401(k) or other workplace retirement plans. According to the Plan Sponsor Council of America, just 3% of 401(k) plans have an ESG fund.
These exciting developments for ESG investing will also have a massive impact on renewable energy stocks. Against this backdrop, now is the perfect time to look at the following seven companies that will ride the ESG trend to massive gains:
- Canadian Solar (NASDAQ:CSIQ)
- Nio (NYSE:NIO)
- General Motors (NYSE:GM)
- NextEra Energy (NYSE:NEE)
- Albemarle (NYSE:ALB)
- Clearway Energy (NYSE:CWEN)
- Enphase Energy (NASDAQ:ENPH)
Energy Stocks: Canadian Solar (CSIQ)
Canadian Solar is one of the world’s largest manufacturers of solar panels, inverters and related equipment. It also provides advanced energy storage solutions and outsourced management of solar power plants.
Demand for solar energy remains strong, driven by ambitious public and private sector targets. Canadian Solar’s revenue jumped $1.1 billion, increasing 32% year over year (YOY) and comfortably beating guidance of $1.0 billion to $1.1 billion. Net income increased from 11 cents per diluted share to 36 cents, ending the first quarter with $1.5 billion in cash.
Canadian Solar has announced a partnership with Habitat Energy, which offers AI-enabled battery optimization and dispatch services. Additionally, the company is planning to unlock value with an initial public offering (IPO) of a manufacturing division in China. Canadian Solar joins at least two other U.S.-listed solar companies that are also planning equity sales in China.
Looking ahead, the company’s lucrative solar energy projects will set them up for explosive growth through 2025 and beyond. That’s why analysts, including Goldman Sachs, think CSIQ is one of the top green energy stocks.
Nio is a leading manufacturer of premium electric vehicles (EVs) in China and commonly referred to as the Tesla (NASDAQ:TSLA) of China. EV enthusiasm and the breathtaking price performance of TSLA have driven the price of NIO stock up 31.8% in the last three months alone.
Considering the company’s vehicle delivery numbers and recent earnings, the price momentum is not surprising. In every quarter of 2020, Nio smashed previous records. In the first quarter of 2021, 20,060 vehicles were delivered, representing increases of 423% YOY and 16% sequentially. Vehicle sales soared to $1.13 billion in the quarter, an increase of 489.8% from the first quarter of 2020.
Aside from these excellent figures, Nio’s entry into European markets is cause for optimism. German automakers traditionally dominate the continent’s premium auto market, but Chinese EV makers are ramping up their efforts to take a share.
So far, Nio is active in Norway because of the country’s commitment to sustainability. The company will begin delivering its ES8 large SUV to the market in September. The automaker will install a network of city center stores, charging stations, service centers and battery swap stations in the “Land of the Midnight Sun.”
The automaker will launch sales in five more European countries, making NIO stock an ideal investment.
Energy Stocks: General Motors (GM)
General Motors has been manufacturing cars since it was founded as a holding company for Buick in 1908. With its global headquarters in Detroit, GM has become the largest American automobile manufacturer. GM sells millions of vehicles annually, and many of these models have become staples of American culture.
But the automaker has gotten lost in the shuffle because of the immense enthusiasm surrounding electric and autonomous vehicles. It seems strange that GM, which sold 6.83 million cars in 2020, sits at a market cap of $85 billion. Tesla has a market cap of $654 billion despite delivering just under 500,000 units.
Despite a selloff, electric vehicle stocks have been some of the hottest stocks on the market over the past year. GM is following the trend by investing $35 billion in electric and autonomous vehicles through 2025. By 2025, the company will launch 30 EVs globally. Of those, approximately two-thirds will be available for purchase in North America.
GM stock is attractively priced at 11.1 times price-to-earnings (P/E), considering its solid history and robust growth outlook. Ford, another iconic American automaker, is trading at 16.7 times forward P/E.
Ford will increase spending on its electrification efforts to about $30 billion in the next few years. The automaker hopes 40% of its global volume will be all-electric by 2030. But Ford’s gains have already been priced in, leaving GM as one of the only reasonably priced car stocks out there.
NextEra Energy (NEE)
NextEra Energy is the parent company of Florida Power & Light, Gulf Power and NextEra Energy Resources. It is the largest electric utility holding company by market capitalization.
Recently, NEE stock has not had a great time. It’s down 3.6% year to date, but the company remains one of the best utilities committed to clean energy. NextEra Energy is also geographically diversified across the continental U.S., with a presence in all but a few states.
On April 21, NEE reported strong first-quarter 2021 financial results. Adjusted earnings per share rose 14% YOY to 67 cents. These results reflected a four-for-one split stock in October 2020.
NEE stock took a hit when the company failed to collect $180 million in revenue following the Texas energy crisis. But their Q1 results will go a long way to pacify investors’ fears.
Commenting on the results, NextEra Energy chairman and CEO Jim Robo said, “After a strong start to the year, we remain as enthusiastic as ever about our long-term growth prospects, and we will be disappointed if we are not able to deliver financial results at or near the top end of our adjusted earnings per share expectations ranges in 2021, 2022 and 2023.” For 2022 and 2023, NextEra Energy foresees growth of 6% to 8% based on expected adjusted earnings per share for 2021.
Several factors can easily boost NEE stock. Strong execution of its generation, transmission and distribution facilities utility business make NextEra Energy stand out in the market. Additionally, the company’s development of its renewable segment and hydrogen opportunities make NEE a can’t-miss stock in the renewable energy space.
The one area that concerns me is NEE stock’s valuation. As I write this, shares are trading for 29.5 times forward P/E.
Energy Stocks: Albemarle (ALB)
Albemarle Corporation is a Charlotte, North Carolina-based global chemical manufacturing company. It specializes in lithium, bromine and refining, making it an ideal stock to play the EV boom.
You may be wondering how Albemarle relates to EVs when it’s not even a car manufacturer. But the biggest difference between regular gas guzzlers and electric cars is what’s under the hood.
While a traditional car runs on an internal combustion engine, an electric car runs on batteries — the most critical part of an EV. That is where lithium, the lightest metal and solid element, comes into play.
Lithium batteries pack a punch and they already power your cell phone and laptop. Most plug-in hybrids and all-electric vehicles use lithium-ion batteries. BloombergNEF expects electric vehicles will need as much lithium as 250 billion iPhone by 2030.
Understandably, the industry is in for an amazing decade. And as one of the world’s largest lithium producers, Albemarle will benefit from growth in the EV market.
Lithium is not a rare metal. But you need mines and large-scale operations to extract it — and both might take years to set up. As a big player in lithium production, Albemarle already has a leg up on its competition.
Looking ahead, Albemarle is investing in its Silver Peak, Nevada site, which will double its output by the end of next year. Silver Peak is the only active lithium operation in the U.S. today.
Clearway Energy (CWEN)
Clearway Energy develops renewable energy projects and provides energy storage services. It operates 1.2 GW of solar power and 3.2 GW of wind power in the U.S. Clearway can also sell energy to utilities, governments and other companies to help offset carbon emissions.
Clearway’s main distinguishing service is the “community solar” farm. The program allows individual, small business and commercial customers to subscribe to a solar farm and receive energy credits that reduce their utility supply charge. It takes away the annoyance of installing solar panels individually. Instead, the community shares the power generated through a solar farm developed by Clearway Energy.
The company has “nearly 100 community solar farms active or in development, and 200 MW of operating solar capacity serving approximately 15,000 customers.” The farms are located in Colorado, Illinois, Massachusetts, Minnesota and New York.
Clearway Energy serves public and private institutions, including Arizona State University and MGM Resorts International (NYSE:MGM). Since Clearway has a unique operating model, investors will need to be patient, but their stock can pay off in the end.
Energy Stocks: Enphase Energy (ENPH)
Enphase Energy develops and sells solar photovoltaic home energy solutions. Shares rallied between September 2020 and early January 2021, and ENPH stock remained near its all-time high throughout early February.
But like other clean energy stocks, Enphase began to struggle thereafter. For instance, the iShares Global Clean Energy ETF (NASDAQ:ICLN), a BlackRock (NYSE:BLK) fund with $6.2 billion in assets, is down about 19% year to date compared to a 15% return for the S&P 500.
Green bubble concerns, rising raw-material costs and fallout from the winter storm in Texas caused a selloff in renewable energy stocks earlier this year. Against this backdrop, one can understand why ENPH stock has lost a bit of steam.
Looking ahead, consensus estimates tracked by Refinitiv call for an increase of 70.1% and 129.9% in fiscal years 2021 and 2022, respectively. Storage growth, favorable legislation and the impressive growth outlook means there is still upside left to exploit despite a one-year return of 282.9%.
On the date of publication, Faizan Farooque 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.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.