There’s more than just electric vehicles and solar power
There’s been a lot of focus on the impact of Hurricane Florence, from the initial drama on the Carolina coasts to sustained rainfall that has swamped communities that are 100 miles or more inland.
But amid the commentary about how this will affect the S&P 500 SPX, -0.04% and specific sectors, it’s worth examining discussing the broader trend of extreme weather brought on by climate change and considering which stocks and investment themes are best positioned to profit from this.
Here are five ways to do that:
Electric vehicles
One of the largest sources of greenhouse gas emissions is the internal combustion engine.
Though the Trump administration has tried to roll back fuel efficiency standards, it is facing a tough fight from California, which is looking to cut automobile pollution. Moreover, electric vehicles are increasingly becoming the norm elsewhere, such as in Norway, where more than half of new car sales are hybrid or full electric vehicles. Even China has taken steps in this direction, halting production of some 500 of its dirtiest car models earlier this year.
The trend away from traditional engines is clear, though it’s harder to discern who will win the electric vehicle race. Tesla Inc. TSLA, -0.94% certainly has first-mover potential, but recent troubles including a possible criminal probe make it difficult for some investors to have confidence in the dynamic company or its firebrand CEO, Elon Musk. In fact, as I wrote recently, legacy auto maker General Motors GM, -2.11% is holding its own with its Bolt and Volt EVs, despite the buzz factor behind Tesla.
If you want to pick a single stock, you can bet on the field via a fund like the Global X Autonomous & Electric Vehicles ETF DRIV, +0.20% or the KraneShares Electric Vehicles & Future Mobility ETF KARS, +1.53% Both are very young funds with only modest assets under management, but contain a comprehensive list of stocks that represent the future of automobiles.
Specialty building stocks
In the age of climate change and extreme weather, what goes into a typical home will change. Just consider the LEED standards developed by the U.S. Green Building Council that are now commonly cited in new construction, or increasing calls for residential building codes to reflect a warming climate and extreme weather events.
A play on this trend is Johnson Controls JCI, -0.40% Its Building Technologies & Solutions segment, which includes HVAC systems sold under the York and Hitachi name as well as energy-management consulting, cleared $22.8 billion in sales in fiscal 2017 out of about $30.2 billion in total revenue. Similarly, Ingersoll-Rand IR, +0.57% relies heavily on sales of its Trane HVAC products; they contributed $11.2 billion out of $14.2 billion in total revenue for fiscal 2017.
Or look at Owens Corning OC, -0.63% a leader in roofing and insulation products (think its Pink Panther branding). The 2016 acquisition of roof underlayment manufacturer InterWrap further strengthened its already dominant position in this building materials market.
And of course, don’t forget generator mainstay Generac Holdings Inc. GNRC, -0.09% for when the power goes out in the inevitable storm. Shares are up 20% so far this year on projected revenue growth of 13%.
Solar power
Just as traditional transportation is increasingly a problem in the age of climate change, so are traditional sources of energy.
Yes, there have been challenges for renewable energy sources, such as an aging and inefficient power grid. And yes, short-term volatility is par for the course in solar amid policy uncertainty and often very big swings in pricing. However, the long-term potential of solar providers is the real deal.
As with electric vehicles, picking an individual winner can be challenging. First Solar Inc. FSLR, -0.62% is one of the leaders in the space, with a market capitalization north of $5 billion and a consistently profitable operation. But most investors who have been in this stock know that it can be quite volatile; it may be up almost 80% from its spring 2017 lows, but is actually down almost 30% since Jan. 1.
If you don’t want to play panels directly, a lesser-known small-cap stock, SolarEdge Technologies SEDG, -0.35% is an option. The company makes inverter systems for solar photovoltaic arrays used worldwide, meaning it helps transmit and store that energy for future use. This is a key part of solar’s future, and that makes it an interesting stock to watch.
Of course, it’s just as volatile as First Solar and other companies that deal in the actual solar arrays; SolarEdge’s stock is down about 40% from its May highs, but remains up 60% in the last 12 months.
As with EVs, there’s an ETF that allows you to hedge your bets instead of picking individual names. The Invesco Solar ETF TAN, +0.42% tracks about two dozen solar stocks, including both First Solar and SolarEdge. With over $300 million in assets and a listing that is over 10 years old, it is the leading fund to play long-term trends in solar driven by climate change.
Carbon futures
Of course, why invest in next-generation technology stocks when you can just buy the carbon that is causing global warming? That’s what the iPath Global Carbon ETN GRNTF, -8.75% allows you to do, with an exchange-traded product that invests in ICE-listed carbon futures.
You might think that carbon trading is a quirky environmentalist fantasy. But Europe currently has a robust market for carbon futures thanks to mandatory emissions programs, and this year the benchmark for European carbon hit a 10-year high.
Although U.S. carbon markets have struggled to find a big-picture framework thanks to foot-dragging at the federal level, there is an active market for carbon futures in North America thanks to regional environmental initiatives. Currently, a patchwork of carbon cap-and-trade markets covers much of the Northeast United States, a big part of Canada, and the state of California. That U.S. network is growing; in January, New Jersey’s newly elected governor signed an executive order to return the state to the Regional Greenhouse Gas Initiative of nine other states.
While this ETN trades in the over-the-counter market and can have thin volume, its return of more than 200% year-to-date should make any investor sit up and take notice.
Water stocks
Water is an increasingly important climate-related issue. From persistent droughts in California to recent water-rights disputes between Florida and Georgia, it is increasingly apparent that providers of clean and reliable water sources are in a growth industry.
There are several ways to play this trend via the stock market. One is Ecolab Inc. ECL, +0.13% a company that focuses on water hygiene and conservation technologies. Not only is this mission attractive to companies and municipalities that want potable water, it’s also connects with environmentalists who want to keep water sources clean and increase efficiency. Revenue is set to grow more than 20% in 2018, and shares are up 18% since Jan. 1.
Another firm to watch includes pump, filter and control manufacturer Xylem Inc. XYL, -0.21% which is up 20% year-to-date on what is expected to be double-digit revenue growth this fiscal year.
There are also water utilities like American Water Works Company AWK, +0.19% a $16 billion water and wastewater-service provider with a 2.0% dividend yield. Its quarterly distributions have surged from 28 cents in January 2014 to 45.5 cents now.
And, of course, there’s also an ETF. The Invesco Water Resources ETF PHO, -0.22% includes all three of these names among its 35 holdings.
