Get Renewable Gains From Green Investing

Socially conscious investing has gained significant traction in recent years, particularly as millennials enter the investment scene. One subsector of this trend is green investing. Here, several leading advisors and contributors to MoneyShow.com highlight environmentally friendly buys with a focus on renewable energy. Jim Pearce, Investing Daily's Personal Finance Our best-performing utility holding is NextEra Energy , which generates most of its electricity from wind, solar, and nuclear power plants. Formerly known as FPL Group (Florida Power & Light), the company serves five million customer accounts in the southern half of Florida. Until two months ago, NextEra had enjoyed a smooth ride up the charts, more than doubling in value since we added it to our portfolio less than four years ago. However, from March 4 through March 23, NEE lost more than a third of its value along with the overall stock market. Since then it has recovered more than half that amount and is back into positive territory for the year. On April 22, NextEra released first-quarter results for its three operating subsidiaries that included a 7.4% increase in earnings per share (EPS) on a 9.2% improvement in net income for its FPL (direct to consumer) business versus the same quarter last year. Its other direct to consumer division, Gulf Power, recorded flat earnings growth on an 8% gain in net income. The company's wholesale operations performed even better than its retail business with an 11.3% jump in adjusted EPS on a 13.3% gain in net income. NextEra noted signs of diminishing demand due to the pandemic but reiterated guidance for adjusted EPS growth in the 6% to 8% range through 2022. The firm entered this year with $650 million in net liquidity and only $300 million in debt maturing this year, with no other debt maturing until 2024. NextEra was able to raise its quarterly cash dividend to $1.40 in February while most companies were heading in the opposite direction. NextEra pays a forward annual dividend yield of 2.3%. Given its solid first-quarter results and strong balance sheet, we're rising the buy limit for NextEra Energy to $265. Gordon Pape, Internet Wealth Builder Green bonds are fixed-income securities that are specifically intended to raise money for climate and environmental projects. Last year, at least $157 billion worth of these bonds were issued around the world. That's a lot of money directed towards the environment. So why is it so hard for individual investors to get a piece of the action? John Cook, CEO of Greenchip Financial, recently told us that, while the supply of green bonds is increasing, institutional investors are snapping up new issues and liquidity is poor. There are two U.S.-based ETFs to consider if you're interested. iShares Global Green Bond ETF This fund invests in a portfolio of investment-grade global green bonds, where the use of proceeds is directly tied to promote climate or other environmental sustainability purposes through independent evaluation. The fund was launched in November 2018 and showed a one-year total rate of return of 6.83% to the end of April. The year-to-date return as of May 20 was 1.38%. Distributions: The fund makes monthly distributions, the amount of which may vary considerably. The trailing 12-month distribution to May 1 was $2.29 (figures in U.S. dollars), for a recent yield of 4.2%. There are 383 positions in the portfolio. The majority of the holdings are European, with France accounting for 22.7% of the assets, Germany 9.8%, and the Netherlands 8.1%. About 10% of the holdings are U.S. and 3.5% Canadian. Some 12.4% of the bonds are issued by supranational organizations, such as The World Bank. The portfolio's effective duration (a measure of risk) is 7.9 years. The longer the duration, the more vulnerable a bond or a fund is to interest rate movements. This ETF has about $75 million in assets under management. It's lightly traded, with an average daily volume of 17,726 units. There are 1.4 million units outstanding. The net expense ratio is 0.2%. VanEck Vectors Green Bond ETF This ETF seeks to track the performance of the S&P Green Bond U.S. Dollar Select Index. It is comprised of U.S. dollar-denominated green bonds that are issued to finance environmentally friendly projects, and includes bonds issued by supranational, government, and corporate issuers globally. Payments are made monthly and may vary considerably. For the 12 months to May 21, the units paid $0.572. That's a trailing yield of 2.1%. This fund is much more heavily weighted to the U.S., which accounts for 31.9% of the assets. China is next at 15.38% and supranational organizations account for just over 13%. So, the exposure is very different from the iShares fund, which focuses mainly on Europe. About 77% of the assets are investment-grade. The duration is 5.3 years, making this ETF a little less volatile than the iShares entry. The fund was launched in March 2017. Total assets are just over $32 million. There are 1.2 million units outstanding, with an average daily trading volume of only 6,163, so place a limit order if you decide to buy and be patient. The net expense ratio is 0.2%. The same withholding rules apply as with the iShares fund. The VanEck fund has a longer track record and the returns to date are acceptable. Based on duration, it is also less risky than the iShares entry. However, the iShares fund offers superior credit quality -- only 0.29% of the portfolio is unrated; the rest is BBB or higher with 55% of the assets rated AAA or AA. And it has a better yield, based on the results of the past year. On balance, our choice is the iShares fund and we will add it to our Recommended List. Timothy Lutts, Cabot Stock of the Week Renewable energy is the future. So what are the best renewable energy stocks to invest in to take advantage of this trend? In my view, the best prospects today are a couple of firms that make key electronic components for the solar modules. Located in sunny California, Enphase is the world's leading supplier of microinverters, which convert direct current (DC) energy from solar modules into alternating current (AC). Its products are used all around the world (U.S., Europe, Australia), though it's notably weak in the Chinese market. First-quarter results saw revenues of $206 million, up 105% from the year before and earnings of $0.38 per share, up 375% from the year before. That's great growth, but that's not all. A big reason why Enphase's growth story still has plenty of upside is its Encharge battery system, which will allow homeowners to generate, store and control energy in a single system. All told, the firm believes its target markets will nearly quadruple in size by 2022; given the solar industry's ups and downs, that's not a sure thing, but there's no doubt the potential is huge if things go right. The stock recently had a market cap of $7.3 billion, and the forward P/E ratio is 59, which is high, but lower than the growth rate! SolarEdge , which went public in 2015, has a market cap of $6.7 billion and a forward P/E ratio of 45, so it's definitely in the ballpark with Enphase. The company has invented a smart string inverter solution that's a game-changer in harvesting power and managing it in a solar photovoltaic (PV) system for residential and commercial use. The company also makes power optimizers, which are electronics that attach to the back of solar panels. In a SolarEdge DC system each PV module is connected to the intelligent power optimizer electronic chip that maximizes energy from that module individually. This means if one module is messed up, dirty or covered with snow, the others run unaffected. Think of it like a system that lets any given bulb in a Christmas light strand break, without affecting how any of the other lights perform. The company's string inverter system is more expensive than more simple string-array systems, but more cost effective than micro inverter systems, which require an inverter for every PV module. Big picture, SolarEdge should grow as the rooftop and distributed solar market grows. Industry analysts see rooftop and distributed solar as the fastest-growing area of the market due to declining technology costs, increasing efficiency, wider use cases (i.e. electric vehicle charging) and ease of use for first-time buyers, remote locations and emerging economies. Just to point to two examples, California has mandated that all new residential homes include rooftop solar systems as of the beginning of 2020, and Texas is ramping up solar use because it is now the lowest cost source of electricity in the state. Revenue was up 59% to $431 million in the first quarter, while EPS was $0.95 per share, up 48% from the year before. Stephen Leeb, The Complete Investor We are tempted to add Tesla to our Growth Portfolio. We've projected growth of 35%. We hesitated, though, because Tesla has a fair amount of debt, raising the risks if economic growth fails to materialize. We also can't rule out a stock offering or more borrowing. So we prefer to wait until we have more complete confidence that a worse-than-expected economic scenario won't come to pass. Still, if you're fully convinced we will avert that worst-case scenario, we wouldn't discourage you from buying the stock now. Tesla is best known as a manufacturer of electric vehicles (EVs). But it's more than that. It's also a technological leader in producing the batteries used both to power EVs and to store renewable energy sources such as solar and wind. Indeed, its battery technology is the major reason that the company leads on the single feature potential EV buyers care about: the car's range -- how far it can travel before needing to be recharged. Compared to our recent recommendations, Tesla has both suffered more harm from and been more advantaged by the pandemic. It was harmed because it had to stop production. But on the plus side, competitors may have been damaged more. General Motors , for instance may have been irreparably harmed by losses that hamper its research efforts. Tesla also gets high marks for its international diversification. Several years ago the U.S. generated 100% of sales. The most recent number was about 50% and falling. It's noteworthy that the company recently began major operations in China. That's a powerful catalyst behind the strong gains in the stock, likely cementing the company's position as a worldwide leader in a critical aspect of renewable energies. Still, despite growth estimates far exceeding those for any other major company and potentially extending far into the future, and debt that as a percentage of metrics like EBIDTA is not excessive, the stock could be vulnerable if the pandemic proves worse than we expect. Tesla is at the top of our watch list, but only investors with a high tolerance for risk should buy now.

Get Renewable Gains From Green Investing

Six environmentally friendly buys with a focus on renewable energy.

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