Climate change stocks are an important and controversial thematic area for investors. Runaway carbon emissions fears were overstated but net emissions continued to rise overall in 2022. Thus, carbon reduction will continue to matter to the markets and demand will persist.
The market downturn last year prompted fear that gains over the last few years would wane. Yet investment into the sector continued to grow as measured by deal activity, capital deployments, and investment into dedicated funds.
The picture appears murky but plenty of signs suggest that the future remains very bright for stocks in the sector. In particular, those that are undervalued at the moment.
BP (NYSE:BP) is an oil stock at its heart. Selling more oil at higher prices is the name of the game. In that regard, it’s not different from most of its American counterparts. As a European energy giant, it is more climate-change-forward. That means it is ahead of the curve relative to its American competitors in relation to most things green.
The combination of current strong oil prices and climate change initiatives makes BP shares compelling at the moment. The company expects to have reduced its carbon emissions 2019 baseline by 10-15% by 2025. It plans to reduce emissions by as much as 30% by 2030 and to become net zero by 2050. Oil prices are high currently which gives BP a chance at higher revenues and profits in the short term. It’s that combination of future direction and current economic tailwinds that makes BP stock attractive.
BP shares also happen to have momentum on their side right now.
Array Technologies (ARRY)
There are at least two strong reasons to invest in Array Technologies (NASDAQ:ARRY) stock that I can think of.
First of all, Array Technologies is fundamentally strong while offering the benefits of a growth firm. The company, which sells solar ground mounting systems, reported profitability in the first half and in the second quarter. Array Technologies reported steep losses during both of those periods a year prior. Revenues grew by 21% in Q2 and are expected to grow by 30% through 2024.
Two, Array Technologies is appealing to a broader base of investors with its recent moves to strengthen its domestic supply chain. Fort Wayne, Indiana’s Steel Dynamics is set to provide Array Technologies with coil for its U.S. projects. That steel coil will be produced at Steel Dynamics’ mills in Indiana, Texas, and Mississippi.
The efforts de-politicize ARRY shares to a degree and that promises to increase overall demand for its stock.
SolarEdge Technologies (SEDG)
It’s very difficult to ignore SolarEdge Technologies (NASDAQ:SEDG) and its stocks right now. The company sells inverters that transform photovoltaic energy into electricity for use in homes.
SEDG shares are very undervalued at their current price of just below $120. Those shares have ranged from $200 to $365 over the past 3 years. They’re so cheap currently because of Q3 guidance. The company basically stated that its revenues would be about 10% lower than the $1.05 billion Wall Street had anticipated. Rates are the issue. A lot of consumers take out loans to finance solar home projects. As long as rates remain stubbornly high, SEDG shares will continue to have trouble.
I can’t predict when rates will ease. However, we can all assume that rates will come down sooner or later. That means an investor with a reasonable time horizon, let’s say 18 months, can buy and hold SEDG shares with a strong expectation of high returns.
SEDG shares may get a bit lower since the Fed is going to raise rates by another 25 basis points but timing the market is a fool’s errand. A bit of confidence now is all that’s necessary.
NextEra Energy (NEE)
NextEra Energy (NYSE:NEE) should really be on any investors’ buy list of stocks for climate change who have patience and foresight. The firm is an interesting company because of the business mix it represents.
It’s part utilities firm and part renewables firm. The utilities firm, Florida Power & Light, is the biggest utilities firm in the U.S. The renewables business, NextEra Energy Resources, generates more wind and solar energy than any other firm globally.
Normally, that would make NEE stock particularly appealing because it offers growth from the renewables side and income and stability from its utility business. It still does offer that mix currently but utilities firms are getting crushed due to high bond yields. Investors are piling into bonds yielding close to 5% risk-free returns. Utilities dividends tend to pale in comparison and investors have fled the sector. Thus, NEE shares are down. Bond yields are going to remain high into 2024 so NEE shares, like SEDG shares, will require patience. A resolute investor can make out very handsomely by simply placing capital into NEE shares now and waiting for a year.
Albemarle (NYSE:ALB) is among the leading lithium stocks available to investors. The North Carolina firm is the largest producer of EV battery metal and burst into public consciousness over the past few years.
It’s cheap for many reasons but it holds a strong place in the U.S. EV supply chain and is simply put, going to last. The firm announced a $90 million grant from the Department of Defense a few weeks ago. Arguing against the long-term strategic importance of Albemarle is pointless. The DoD understands the strategic importance of lithium sourcing and is tacitly approving EVs with this and other moves. The grant will fund Albemarle’s reopening of Kings Mountain in North Carolina further strengthening U.S. lithium production.
Albemarle’s performance remains strong but lithium price volatility and overarching macroeconomic headwinds are souring the EV outlook. That makes it easy to ignore ALB at the moment which is exactly what the market has done. Those who get in now will receive modest dividend income, financial performance, and a strategically placed firm entrenched in the U.S. geopolitical fight for EV dominance.
Louisiana-Pacific (NYSE:LPX) makes engineered wood products for the construction sector. The stock is inexpensive at the moment.
100% of the wood fiber used in its products was sourced from certified standard forests and 80% of the thermal energy used in making its products was from renewable sources.
Louisiana-Pacific Corp. is evolving with the times and has developed sustainability standards that matter. It is also dependent on home construction as a primary catalyst for its business. Sales have slumped recently. It is undervalued at the moment because of the slump and higher rates. However, Wall Street favors LPX shares as does Warren Buffett through Berkshire Hathaway which holds a significant portion of the firm’s equity.
Revenues grew quickly over the past 3 years but have slowed of late. Warren Buffett bets on American resilience and his vote of confidence in LPX shares is worth considering as the economy lists in late 2023. All in all, it’s one of those climate change stocks to consider.
Trane Technologies (TT)
Trane Technologies (NYSE:TT) is a relatively unheralded ESG stock because its business doesn’t receive much attention in relation to carbon emissions. Most investors think about oil when considering top carbon emitters. Buildings are also very important in that conversation. Heating buildings and cooling them down contributes to roughly 15% of all carbon emissions. That makes HVAC firms like Trane incredibly important even if they don’t get much attention.
TT stock is solid, dependable, and headed in the right direction. Trane Technologies is expected to grow because commercial spaces are increasingly looking to lower their costs and emissions. Trane Technologies is a leader in the space. Internet of Things (IoT) opportunities are also on the rise and that suggests that many factors are conspiring in the firm’s favor.
Trane Technologies may be boring in the eyes of most but all the signs point to long-term opportunities as it plods along at or above earnings expectations quarter after quarter. This makes it one of those stocks battling climate change.
On the date of publication, Alex Sirois 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.