Fortune recently reported that the European climate agency, Copernicus, said that the global average temperature last year was 2.66 degrees Fahrenheit warmer than pre-industrial times. More importantly, it was 0.3 degrees Fahrenheit higher than the record set in 2016. As it becomes more important than ever to tackle global warming, climate change stocks will likely become more profitable for investors.
Discussing 2023’s temperatures, Copernicus Deputy Director Samantha Burgess reported, “It was record-breaking for seven months. We had the warmest June, July, August, September, October, November, December. It wasn’t just a season or a month that was exceptional. It was exceptional for over half the year.” According to Woodwell Climate Research Center climate scientist Jennifer Francis, “2023 was probably the hottest year on Earth in about 125,000 years.”
Unfortunately, the most significant cause of the warmest year on record was greenhouse gas emissions from burning coal, oil and natural gas. So as companies aim to tackle the continued rise in global temperatures through the implementation of climate-friendly technologies, investing in companies with products and services that address climate change should continue to be financially beneficial.
Atlantica Sustainable Infrastructure (AY)
Atlantica Sustainable Infrastructure (NASDAQ:AY) is a a company based in the United Kingdom that owns and manages infrastructure assets, including renewable energy, conventional power, transmission lines and water assets. The company has assets in North America, South America, Europe, the Middle East and Africa.
Approximately 70% of its assets based on cash available for distribution (CAFD) are renewable energy, with 92% of its project debt fixed or hedged to reduce risk. Geographically, North America accounts for 40% of CAFD, Europe (34%), South America (18%) and the rest of the world (8%).
These assets have power purchase agreements (PPAs) in place with an average of 13 years remaining, so cash flow is protected for the long term. As of November, Atlantica had a development pipeline of 2.1 gigawatts (GW) of renewable energy and six gigawatt-hours (GWh) of storage. Approximately 44% is solar, 42% storage, 13% wind and 1% for other types of renewable energy.
As of Sept. 30, 2023, it had $4.41 billion in debt. It plans to reduce that to $2.54 billion by 2028. In 2022, it grew its CAFD by 5.5%. In 2023, it will likely be flat year-over-year (YOY) or up slightly. Its annual payment of $1.78 yields a high 8.8%, making it a great choice for investors looking at climate change stocks.
Xylem (XYL)
Xylem (NYSE:XYL) was spun off from ITT (NYSE:ITT) on Oct. 31, 2011. It was the industrial conglomerate’s water technology business. When ITT spun Xylem off, Xylem has $3.2 billion in annual revenue and $388 million in operating income. Flash forward 12 years and it now has $5.52 billion in revenue and $622 million in operating income.
Given 2023 was the world’s warmest year on record, exceeding the pre-industrial average temperature by 2.43 degrees Fahrenheit, ensuring there is enough water is vital to the survival of the planet. According to the company’s January 2024 Investor Overview, by 2030 there will be a 40% gap between the global water supply and demand. There is nothing more important for a sustainable world than plentiful water, and Xylem’s focus is solving the world’s biggest water challenges.
Most recently, it acquired Evoqua Water Technologies for $7.5 billion in stock in May 2023. Evoqua is a world leader in water treatment solutions and services. Together, the companies have an annual revenue of $7.3 billion. Xylem shareholders own 75% of the merged entity, with Evoqua shareholders owning the remaining 25%.
Since the acquisition last May, XYL stock has appreciated by 10%. That’s good news for a stock that has underperformed the S&P 500 by 22 percentage points over the past five years. With the acquisition of Evoqua, it now has four operating segments contributing at least 20% to the company’s overall revenue. All these developments mean the next five years for Xylem’s shareholders should be better than the past five, so investors searching for climate change stocks with upside potential should take a look at XYL.
Siemens Energy (SMNEY)
Approximately 55% of Siemens Energy (OTCMKTS:SMNEY) was spun off by Siemens AG (OTCMKTS:SIEGY), the German industrial conglomerate, in September 2020. The parent spun off the maker of wind turbines and power transmission systems because its lower margins hurt its overall valuation. As of Sept. 30, 2023, it still owned 25.1% of Siemens Energy.
At the time of the spinoff, Siemens Energy owned 67% of Siemens Gamesa Renewable Energy. It completed the purchase of 98% of the shares by December 2022. In June 2023, it acquired the remaining 2.21% of Siemens Gamesa stock. It is now a fully integrated subsidiary.
According to the company’s Jan. 9, 2024 presentation, it had an order backlog of 112 billion euros ($122.7 billion USD) at the end of September, up from 97 billion euros ($106.2 billion USD) a year earlier.
It is working on a turnaround plan for Siemens Gamesa to reduce its losses from 4.3 billion euros ($4.71 billion USD) in 2023 and break even by 2026. Its three other operating segments, gas services, grid technologies, and transformation of industry, generated healthy profit margins in 2023. Once it gets Siemens Gamesa to profitability, the shares will be worth considerably more, so investors looking for a long term play in climate change stocks should check out SMNEY.
On the date of publication, Will Ashworth did not hold (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.
