There’s definitely a feeling that the world’s big players are throwing everything, including the kitchen sink, into tacking the climate crisis. With such huge vast amounts of money pouring into the sector – from governments and big corporations, there is potential for those firms who get it right to make significant returns for their shareholders.
Using fundamental analysis can help identify the firms that have a competitive edge. The below list of the 5 best climate tech stocks offers a fast-track route into profiting from one of the hottest sectors in the market today.
Best Climate Tech Stocks
The catch-all term Climate Tech Stocks is used to identify firms with the potential to capitalise on the shift towards cleaner greener energy production and use. Any definition of the sector has fuzzy edges and includes, but is not limited to, renewable energy stocks, electric vehicle (EV) firms, EV charging stocks and climate tech companies.
Even major corporations that might not be thought of as out-and-out climate tech stocks are still doing their bit, as outlined by the CSR policies of Nike and Coca Cola. This does sometimes lead to charges of ‘’greenwashing’, where legacy operators try to do just enough to not fall out of favour with investors and consumers.
The below stocks offer an alternative approach. They give investors the opportunity to say ‘hand on heart’ they invested in the firms best positioned to bring about climate change.
Brookfield Renewable (NYSE: BEPC)
One firm that offers exposure to a wide range of clean energy sectors is Brookfield Renewable. It is an industry leader in solar, wind, and hydroelectric electricity generation and has a growing carbon capture division. Its mandate extends to a lot of other areas ranging from urban design to container ports.
Brookfield Renewable’s diversified portfolio of renewable energy assets and its focus on long-term, stable cash flows make it a solid option.
One of the neatest aspects of an investment in Brookfield is the ‘hedge fund style’ approach it offers. The firm is majority-owned by Brookfield Asset Management, which has the stated aim to “generate attractive long-term risk-adjusted returns for the benefit of our clients and shareholders” (source: Brookfield).
Small investors can buy Brookfield stock and take comfort from knowing they will be investing in the same projects as professional investors and high-net-worth individuals. That doesn’t necessarily guarantee positive returns but could suit those with long-term buy-and-hold investment strategies.
First Solar Inc (NASDAQ: FSLR)
Source: 123rf.com
According to the International Energy Agency, 60% of global renewable energy is attributed to solar and one of the primary candidates in that sector is First Solar Inc. The firm has been operating for more than 30 years and now has a +$7bn market cap, which means it has the critical mass to invest in projects in what is a booming sector.
The management team have recently reviewed operations and put through a range of cost-cutting exercises, which should help the trading bottom line and result in cash being returned to investors in the form of dividends or stock buy-backs.
Albemarle Corporation (NYSE: ALB)
Albemarle is a significant player in the climate tech sector, particularly through its role in the lithium industry. Lithium is a critical component in the production of batteries for electric vehicles (EVs) and energy storage systems making it a vital player in the broader climate tech ecosystem.
The firm is also committed to sustainability and focuses on responsible mining practices to reduce the environmental impact of lithium production. This aligns with the growing emphasis on ESG criteria.
Tesla (NASDAQ: TSLA)
The surge in the Tesla Motors Inc stock price through recent years was followed by a pull-back and an opportunity for buyers to enter at more attractive prices. Elon Musk’s EV manufacturer still boasts super-strong global brand recognition and first-adopter advantage, just at new lower price entry levels.
The global EV market is forecast to grow from around $290bn in 2021 to $1,320bn by 2028 and Tesla is still very much the undisputed leader in the sector. One of the potential trip-hazards for Tesla has been the question of whether it can produce enough vehicles to keep up with demand, but the new ‘gigafactories’ being built in Germany and Texas are due to come online soon.
Whilst the firm is best known for its EVs, Tesla is also involved in renewable energy through its solar energy products and battery storage solutions, such as the Powerwall and Powerpack.
Aker ASA (AKER)
With the Norway government on track to invest $28bn per year in renewable technology, Aker ASA looks well-positioned to develop a strong base from which to reach out into international markets. The firm offers exposure to a wide range of cutting-edge technologies and is particularly strong in the carbon capture sector.
The blend of solid and speculative projects has found favour with investors and resulted in the share price rising almost fourfold in value between February 2020 and October 2021.
The Benefits of Buying Climate Tech Stocks
Helping the Environment
Taking the decision to buy climate technology stocks supports the stock price of a company and that helps the management invest in the projects required to move the global economy from being carbon-reliant.
This not only provides potential financial returns but also aligns your investments with your values, enabling you to make a positive impact on the environment and society. It also sends a signal that investors, as well as consumers, are supporting the move to a better way of doing things.
Investment Returns
Early days climate tech investors did have to factor in that financial reward might need to be a secondary concern to the aim of achieving social and environmental change – that is now far from the case.
Identifying trends and investing in the same direction is one of the fundamentals of maximising profits and the wall of cash moving into the sector points to short, medium and long-term growth.
Government subsidies look set to be scaled back at some point in the future, but institutional investors such as pension funds are following mandates which require them to take sizeable positions in climate change stocks.
Trend Following
There is a saying in financial markets that ‘the trend is your friend’. Usually people are referring to the trend in an individual company or stock, but a macro trend can be just as powerful an ally.
The transition to a low-carbon economy is a major global trend, supported by international agreements like the Paris Agreement and various national policies aimed at reducing greenhouse gas emissions. Investing in climate tech allows you to align your portfolio with these long-term trends, positioning yourself to benefit from the shift towards sustainable practices across industries.
Being At The Front Of Innovation
The tech part of climate tech leads to innovative and creative development. The sector will be driven by continuous innovation and technological advancements meaning those in this space are constantly developing new solutions to improve energy efficiency, reduce emissions, and promote sustainability.
Portfolio Hedge
Climate tech is not solely reserved for those with virtuous intentions. Those who are already invested in fossil fuels in one shape or another could consider the sector as a way of hedging their portfolio against risk, and also in balancing their portfolio more to the green side.
As the world transitions to cleaner energy sources, traditional energy companies face potential declines in demand, regulatory pressures, and stranded assets. By investing in climate tech, you can mitigate these risks and position your portfolio for a future where sustainable energy solutions play a central role.
FAQs
Any firm operating in the solar, hydro, tidal, EV or carbon capture sectors is going to have pretty strong eco-credentials. Using fundamental analysis can help establish if a climate tech stock is a buy or a sell and technical analysis can help you find the best time to enter the market.
Increased investor interest in the sector has resulted in trusted brokers expanding the number of markets they offer to their clients. Setting up an account at an online broker is super easy to do and takes a matter of minutes. From there, it’s just a case of navigating through the site to where your target investment is located, entering the quantity of stocks you want to buy and clicking or tapping buy.
Climate stock prices are associated with higher than average price volatility levels. Short-term speculators and day traders are active in the markets and can drive price up, or down by a significant amount in a short space of time. Investors with a longer-term investment strategy will be taking a view on to what extent climate stocks are going to become the ‘new normal’.
