Which are the best green stocks to invest in?

What are green stocks?

Green stocks are environmentally friendly stocks that appeal to investors that want their money to contribute to the planet’s future sustainability. This has become an increasingly popular way of investing as the world has become more conscious about environmental, social, and governance (ESG) sustainability.

For instance, some ESG conscious investors may only be interested in buying stocks that are committed to producing low carbon footprint and or energy efficiency through renewables, such as wind and solar power.

How will global renewable energy consumption grow?

When investing in green stocks it’s still important to diversify your portfolio. Diversification will ensure that you have a healthy basket of green stocks within your portfolio. This can help limit your exposure to risk and hopefully keep your portfolio afloat in the event of an economic downturn.

With us, you can open a CFD account to speculate on the price rise and fall of green stocks. You can also open a share dealing account and invest in green stocks. This will enable you to own the green stocks outright. You can also earn dividends, if the company pays them, and have shareholder voting rights.

Best green stocks to watch

1. Tesla
2. NextEra Energy
3. General Electric (GE)
4. America Water Works
5. Vestas Wind Systems A/S
6. SolarEdge Technologies
7. First Solar
8. Brookfield Renewable
9. Sunrun
10. FuelCell Energy

Note that the following stocks have not been chosen as the largest 10 best green stocks in the world alone, but rather based on various factors including market cap, future growth prospects, dividends and latest results. This list was last updated on 20 March 2022.

Tesla

Tesla designs, develops, manufactures, sells and leases electric vehicles (EVs). The company is also in energy generation, storage systems, and offers services related to its sustainable energy products. Some of its automotive products include four-door sedans – Model 3 and Model S – as well as sport utility vehicles (SUVs) Model Y and Model X.¹

In its 2021 full year (FY21) financial results, Tesla reported an 87% increase in deliveries of EVs, which it believes speaks to the viability and profitability of these products. The company achieved the highest quarterly operating margin among all volume of original equipment manufacturers (OEMs), which it said demonstrated that EVs can be more profitable than combustion engine vehicles.²

In the same financial year, the group generated $5.5 billion in net income and $5 billion of free cash flow. This was after spending $6.5 billion to build out new factories and other capital projects. It’s ramped up production by increasing manufacturing capacity at its new factories in Austin, in the US and Berlin in Germany. This is while also maximizing output of existing factories in Fremont in the US and Shanghai in China.²

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NextEra Energy

NextEra Energy (NEE) is a North American electric power and energy infrastructure company. Through its subsidiary, NextEra Energy Resources (NEER), it generates renewable energy from the wind and sun. The NEER division owns as well as develops, constructs, manages and operates electric generation facilities in wholesale energy markets in Canada and the US. ³

In its Q4 2021 financial results, the company reported that NEER had a good year, which was seen through its delivery of a 13% increase in adjusted earnings growth compared to the previous year. It had a record year of renewables and storage origination by adding approximately 7200 net megawatts (NW) to its backlog during FY21 as it continued to capitalise on the US’s clean energy transition.⁴

The company’s Q4 2021 net income was attributable to NextEra Energy on a GAAP basis of $1.2 billion. It also reported growth of over 10% in adjusted earnings per share from FY20, delivering a total shareholder return of more than 23%.⁴

Its subsidiary, Florida Power & Light (FPL), reported a net income of $560 million for Q4 2021 compared to $502 million for Q4 2020. FPL’s capital expenditures were approximately $2.2 billion for the fourth quarter of FY21, bringing its full-year capital investments to a total of roughly $6.8 billion. The company said its full-year growth was primarily driven by continued investment in the business.

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General Electric (GE)

GE operates in the industrial, power, renewable energy, aviation and healthcare sectors. It also has a financial services division – GE Capital. In its Q4 2021financial results the company reported making strides in driving innovation in powering the first passenger flight on a United Airlines Boeing 737 MAX 8, to use 100% sustainable aviation fuel in one engine.⁵

The company prides itself in the strides it’s made in precision health. Its latest innovation is the Scaled Vscan Air wireless, a pocket-sized handheld ultrasound that’s available in more than 70 countries. GE Healthcare also completed its acquisition of real-time interoperative ultrasound imaging business, BK Medical, which enabled it to further expand its surgical and therapy interventions.⁵

It reported seeing real momentum and opportunities for sustainable profitable growth from improvements across its businesses, especially with the aviation industry’s recovery post the Covid-19 pandemic. The company said dramatically reducing its debt can further intensify efforts to strengthen operations, enabling it to deliver between $5.5 billion to $6.5 billion free cash flow this year and more than $7 billion in FY23.⁵

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American Water Works

This is a water and wastewater utility company. Its sectors include state-controlled businesses that own utilities providing water and wastewater services to government, residential, commercial and industrial areas. The company owns physical assets used to store, pump, treat and deliver water to customers. It also collects, treats, transports and recycles wastewater. ⁶

Its Military Services Group enters into long-term contracts with the US government by providing water and wastewater services on various armed force installations.

In its annual financial results, the group reported that it made $1.9 billion worth of capital investments, which included $1.8 billion primarily for infrastructure improvements in state-controlled businesses and $135 million for regulated acquisitions.⁶

Its earnings per share were $6.95, an increase of $3.04 compared to the same period in FY20. The group said the increase reflected the gains it made on the sale of Homeowner Services Group (HOS) and a $0.40 increase in the state-controlled businesses as earnings grew from infrastructure investment, acquisitions and organic growth.⁶

It further stated that the increase was partially offset by an estimated $0.05 per share impact from the cooler and wetter weather in FY21, compared to the previous year.

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Vestas Wind Systems A/S

Denmark-based company, Vestas Wind Systems A/S, sells wind power plants and wind turbines. Its services division has offerings related to the company's business activities and sales of spare parts.

In its FY21 annual results, the company recorded €15.6 billion in revenue, and free cash flow of €183 million. In the same financial year, the company achieved an order intake of 13.9GW with an average selling price of €830,000 per MW. It had 3GW of preferred supplier agreements on its V236-15.0 megawatts (MW) offshore turbine as well as a 21% increase in revenue in service.⁷

The company reported an all-time high order backlog of wind turbines that amounted to 22GW, which corresponded to €18.1 billion. This was aligned to the increased backlog in the Power Solutions and Service segments across the country, which increased from €43 billion to €47 billion in FY21.⁷

The share price had a steep decline in March 2021. The group said its profitability was negatively impacted by rising energy prices, supply chain disruptions and accelerated cost inflation from raw materials, transportation, and turbine components.⁷

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SolarEdge Technologies

Smart energy technology company, SolarEdge Technologies, offers an inverter solution for solar photovoltaic (PV) systems. Its products include power optimisers, inverters, monitoring services, energy storage and smart energy management. Its other products include, EV charging batteries, uninterrupted power supply (UPS), EV powertrains and grid services solutions.

In its FY21 financial results, the company said it reported record revenues of $1.96 billion, a 34.6% year over year (YOY) increase compared to FY20. Revenues the company made form solar segment were worth $1.79 billion for FY21.⁸

The company said there’s been a solid and global demand for solar energy across geographies, which generated an unprecedented demand for its products. It further said it saw an increased adoption rate of its innovative technology within the commercial market.

In its outlook for Q1 2022, the company said it expected revenue to be within the range of $615 million to $645 million. It also expects revenues from the solar segment to be within the range of $575 million to $595 million.⁸

SolarEdge said that it’ll be increasing production at multiple sites and navigating supply chain and logistic challenges.⁸

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First Solar

First Solar is a provider of PV solar energy solutions. It designs, manufactures and sells PV solar modules with a thin-film semiconductor technology. It also develops, designs, constructs and sells PV solar power systems that mainly use the modules it manufactures. The company also provide operations and maintenance services to system owners.

In its Q4 2021 financial results, the company reported $900 million for new sales, a $300 million increase from the previous quarter. The increase was due to international project sales and increased module sales in Q4 2021. This was despite the solar PV manufacturing industry facing supply chain, logistics, cost and pandemic-related challenges.⁹

The company reported that Q4 2021 cash and equivalents as well as marketable securities decreased to $1.8 billion from $1.9 billion in Q3 on the same year. The decrease was due to its spend on operations and capital projects in India and Ohio in the US.⁹

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Brookfield Renewable

Brookfield Renewable is focused on power markets in the Northeast, Mid-Atlantic and California, with operations in Minnesota and Louisiana. Its operations include about 12,812MW of installed hydroelectric, wind, solar, storage and ancillary capacity across Brazil, Colombia, the US and Europe.¹⁰

In its annual financial results, the company reported $934 million worth of funds from operations for the year, a 10% increase from FY20. This was due to the business benefiting from recent acquisitions, a strong underlying asset availability and execution on organic growth initiatives.¹¹

The company reported that it had advanced its commercial priorities, securing contracts to deliver 11,000GW hours (GWh) of clean energy annually including 6000GWh to corporate off-takers. It also reported completed cost savings initiatives that have delivered $20 million of savings on an annualised basis.¹¹

It further reported commissioning about 1000MW of new capacity and progressed over 15,000MW through construction and advanced-stage development. It also agreed to invest almost $4.3 billion worth of capital across various transactions in every major market in which it operates.¹¹

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Sunrun

Sunrun is a US-based energy services company that’s involved in the development, installation, sale, ownership and maintenance of residential solar energy systems. It provides battery storage and solar energy systems to its customers in select markets. It also sells its services to commercial developers through its multi-family and new home offerings.

In its Q4 2021 results, the company reported a total revenue of $1.6 billion, a 75% rise from FY20. Revenue from customer agreements and incentives increased by 71% to $827 million, compared to the previous year. Solar energy systems and product sales revenue rose by 79% to $783 million, compared to FY20.¹²

The company stated that inflationary pressures in the US economy and their increasing traditional power rates had provided them with an opportunity to hike its prices as well. Management said it expected the growth of Solar Energy Capacity Installed to increase by over 20% this year.¹²

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FuelCell Energy

This company manufactures fuel cell technology platforms for power generation. It offers various fuel cell products, which are used for multi-MW utility applications, microgrids and distributed hydrogen for on-site heat and chilling appliances for a wide range of products.

In its Q1 2022 financial results, the company reported that product driven revenues had increased to $31.8 million as compared to $14.9 million in Q1 2020.¹³

The quarterly results were negatively impacted by a non-recurring expense of $24 million related to payment of legal fees in connection to the POSCO Energy dispute settlement. There was approximately $22.2 million of backlog due to the settlement agreement with POSCO Energy. The amount represents the value of the extended warranty associated with the module order.¹³

The company had a gross loss of $2.9 million compared to $3.6 million in a similar period the previous year. This was while loss from operations was $44.8 million as compared to $14.4 million. Some of the gross loss was partly offset by the revenue recognised in connection with sales of modules during the quarter to Korea Fuel Cell.¹³

Once the company recovers from the loss from the POSCO Energy dispute settlement and clears its $1.31 billion backlog, perhaps a positive outlook may be in sight.

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Financial benefits of saving the planet

Investing in green stocks doesn’t only leave the investor with a good conscience, it also contributes to environmental sustainability. Green stock investors reap monetary rewards from investing in assets that align to their values and ethics.

For instance, some investors would like to see themselves leave the earth better than they found it, ensuring future generations don’t contend with issues like global warming. Such investors would then make conscious decisions to channel their money towards ESG focused assets, with green stocks being one of them.

Green stocks held in an Individual Savings Account (ISA) receive tax breaks from government as an incentive to encourage people to invest or save.14 Note that ISAs are not an investment, but a manner for you to protect your savings and investments from tax on capital gains, dividends and interest.

Like most sustainability projects, investing in green stocks takes time to yield rewards. This means its better suited for investors seeking longer term investments.

Farm the Earth: solar, water and wind energy

There are a number of renewable industries you can invest in such as wind, solar and water energy.

Wind energy uses turbines that generate electricity as the blades connected to the drive shaft rotate. Solar energy involves the radiation from the sun causing chemical reactions that in turn generate electricity. Water energy or hydroelectricity is when the natural flow of moving water is used to generate power. All of these are eco-friendly and sustainable.

You can also buy green ETFs, such as a the iShares Global Green Bond ETF, which give you great exposure to a basket of companies that promote climate change and or environmental sustainability. Note that past performance and does not guarantee future results.

Clean the planet: waste reduction, green transport and pollution controls

Sustainability has become more topical over the years as many activists and governments around the world pledge to protect the planet for the next generation. Some sustainability methods include implementing waste reduction, pollution controls and green transport systems.

Waste reduction goes beyond recycling plastic, glass and paper. It involves businesses looking for better ways to dispose and recycle of items like computer components, hazardous materials such as batteries, chemicals and oil above ground in a safe and secure manner.^15,16

For instance, computers can be reduced into smaller pieces by means of a shredder then the remaining materials separated into metals and plastics before joining the traditional treatment and recycling process.¹⁵

Green transport involves reducing carbon footprint. It goes beyond walking, cycling and using public transport like the train or bus. Companies like Tesla in the US and NIO in China have seen value in green transportation and have manufactured EVs that are either solely powered by batteries or a plug-in hybrid system.

Pollution controls ensure a reduction of greenhouse gas emissions on industrial power plants, as per government mandates. For instance, some governments may impose penalties on companies producing power plants from fossil fuels like coal. Governments could also choose to incentivise companies that are reducing their carbon emissions by producing power plants that rely on renewable energy.

Footnotes:

¹ Reuters, 2022
² Tesla, 2022
³ Reuters, 2022
⁴ NextEra Energy, 2022
⁵ General Electric, 2022
⁶ American Water Works, 2022
⁷ Vestas Wind Systems, 2022
⁸ SolarEdge, 2022
⁹ First Solar, 2022
¹⁰ Reuters, 2022
¹¹ Brookfield Renewable, 2022
¹² Sunrun, 2022
¹³ FuelCell Energy, 2022
¹⁴ Invest up to £20,000 in an ISA in 2021/22 without incurring capital gains or income tax. Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
¹⁵ Business Waste, 2022
¹⁶ Department for Environment, Food & Rural Affairs and Environment Agency, 2019