While solar may be the first buzz word to pop into your head, the climate change sector is actually quite vast, encompassing an array of companies that are working to get us to a greener world.
In fact, solar may not be your best bet from an investment standpoint. Solar ETFs such as the Guggenheim Solar ETF (NYSEARCA:TAN) have had abysmal performance, down over 90% since it began trading. Ouch.
Looking at clean energy broadly will leave you with numerous options to play the long-term trend.
The transition from a heavy fossil fuel consumption culture to cleaner options will encompass everything from energy efficient manufacturing processes, to specialty chemicals, to better waste management.
Climate Change Stocks to Buy: Waste Management, Inc. (WM)
Waste Management, Inc. (NYSE:WM) does precisely what it says. Based in Houston, Texas, its waste solutions reach throughout North America. Via subsidiaries it collects, recycles, recovers resources, and disposes of waste. It also develops and owns waste-to-energy and landfill gas-to-energy facilities.
Although these facilities are a very small piece of the business, as technological advances are made in this space, as the recipient of convertible raw material, this could grow to become a bigger focus.
Customers include residential, commercial, industrial, and municipal entities who increasingly need assistance managing waste flow. New customers are likely to turn to a company with an extensive network of assets and an excellent reputation. Indeed, WM has observed strong demand for their services.
The most recent quarter indicated that yield and volume in the collection and disposal businesses boosted overall revenues. Additionally, more favorable market prices for recycled commodities and the increase in volume supported the year-over-year growth. There is still room to cut costs and management has mentioned as much, leaving upside in margins and the bottom line to come.
WM also happens to be a great “recession-proof” stock, as during the last financial crisis they managed to maintain healthy revenues, earnings and margins in the face of a challenging macro environment.
Climate Change Stocks to Buy: NextEra Energy (NEE)
NextEra Energy Inc (NYSE:NEE) is a structurally similar company to MLPs in terms of payouts and tax treatment. Since the IPO in 2014, total shareholder returns on a unit basis have outperformed the S&P Utilities Index as well as its peer group. There are a number of reasons to believe that it will continue to.
For one, their renewables portfolio (mostly wind with a bit of solar) will benefit from U.S. Federal Tax incentives that will be valid through the coming decade. The declining costs trends in wind and solar technology as efficiencies are realized and state programs in support of new renewable energy developments are additional sources of growth. I suspect that current projections are conservative as technological improvements zoom ahead at breakneck pace. Costs will fall more precipitously than initially thought for clean energy providers, leaving more earnings to distribute to shareholders.
There are also opportunities to grow via acquisition. With low natural gas prices, a switch from coal-to-renewables has potential. Exposure to pipeline investments has markedly increased over the last couple years and these investments would benefit from such a shift with the likely result of exceeding current 6-8% CAGR expectations (through 2020).
Climate Change Stocks to Buy: Ecolab (ECL)
Ecolab Inc. (NYSE:ECL) intends to be a global leader in water, hygiene and energy technologies. It’s a mission that plays right to the heart of a greener world, and with clients in over 40 different industries (and across 170 countries), they are well on their way to becoming a major partner of even more companies in reaching sustainability and operational efficiency goals.
The Company works with its clients to provides comprehensive solutions to guarantee clean water, safe food, clean energy, and healthy work and living environments. The goals may seem lofty, but clients from healthcare companies to food processors see value in their technology and services provided. This shines through in the recent quarterly earnings.
Sales were up all around. On an overall basis, net sales increased 4%. Every reporting segment contributed to that growth, not a weak link among business units: global Industrial segment increased 3%, global institutional segment increased 8% (specialty and healthcare were particularly strong), and global energy segment increased 4%.
Given that the energy segment is almost a quarter of sales, there is some risk given the volatility of the oil and gas markets. However, the business has shown resilience, and results over the second half of the year are expected to be stronger than the first half.
Climate Change Stocks to Buy: Trimble Inc (TRMB)
Trimble Inc (NASDAQ:TRMB) utilizes technology to optimize work processes. Their tech solutions is a provider of technology solutions that enable professionals and field mobile workers to improve or transform their work processes. Companies are trying to do more with less these days and Trimble has been very successful in helping clients lower operational costs, improve productivity, increase quality and reduce environmental impact.
Trimble’s solutions find use in agriculture, civil engineering, construction, natural resources, and transportation amongst other fields. Three acquisitions that will close in the third quarter will broaden their scope and enhance their offerings. Examples of which include automating industrial equipment like tractors and bulldozers and providing back-office analytics to mine geo-referenced information. The real-time nature of data that Trimble can provide miners, engineers, farmers, etc. is not only valuable but increasingly necessary.
Companies with recurring revenue streams always catch my attention. With Trimble, 29% of total revenue is recurring that falls under the Software and Services reporting category. They are primed to take advantage of companies’ evolution toward SaaS products. Second quarter subscription revenue growth of 14.4% affirms this trend.
Climate Change Stocks to Buy: Owens Corning (OC)
Owens Corning (NYSE:OC) develops, manufactures and markets insulation, roofing, and fiberglass composite that are often lighter and more durable than competitors’ products.
There has been a renewed focus on delivering better shareholder returns, and this offers a compelling reason to investment in this 79-year old leader in reinforced glass. Free cash flow is up 126% in the last two years alone while costs as a percentage of sales are down. Cost improvements across their three major segments of Insulation (EcoTouch Insulation has been well-reviewed), Roofing, and Composites and a brighter looking macro environment will lead to sustainable earnings growth ahead.
Their products are best-in-class, but Corning continues to evolve nonetheless. The acquisition of InterWrap within the Roofing business, will play nicely as people move away from tar paper to synthetic underlayments on the roof.
Double-digit revenue growth for this category should not be an issue between the organic growth and operational synergies.
Climate Change Stocks to Buy: Honeywell International Inc. (HON)
At $104 billion in market cap, Honeywell International Inc. (NYSE:HON) is a behemoth of a company that manages to maintain its innovative edge. It has a diversified portfolio across Aerospace and Safety, but its Home and Building division is the key to its role in a more energy efficient world.
As urbanization continues full force globally, tools for higher air and water quality and managing energy usage have long-term tailwinds. Honeywell has made acquisitions and developed new technologies to address these needs. EvoHome remote heating controls ($8 billion addressable market), Aqua Touch Water Purifier ($8 billion addressable market) , and AirTouch ($2 billion addressable market) are just a few examples of what’s in store.
Connected Smart Energy had a strong showing with $600 million in contract wins last year. To better help utilities leverage data to optimize operations and ultimately deliver energy more efficiently, smart meters have and will continue to drive growth as consumers become more aware and companies realize how this results in savings for them. With a strong brand like Honeywell behind these “efficiency initiatives,” the room to cross sell is massive and still largely untapped.
Climate Change Stocks to Buy: Emerson Electric Co. (EMR)
Merging engineering and technology, Emerson Electric Co. (NYSE:EMR) offers an array of automation solutions and more to clients worldwide. The third quarter showed significant increases in demand in China and Asia at large with more tempered contributions from the U.S. and Canada. As often is the case with global businesses, geographic segments can be lumpy. But the overall picture looks promising.
Products like AC rooftop retrofits improve efficiency across commercial buildings through diagnostics and monitoring, and the partnership with Grind2Energy food waste management for commercial kitchens with real-time data analytics are cross-industry products with immense potential. They are blueprints for companies small and large on ways that Emerson can provide meaningful value-add to their businesses.
For the full year, Emerson expects to hit its net sales growth target of 5% and is on their way to doing so with global demand in North America and Asia strong enough to more than compensate for a lackluster Latin America and EMEA.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.
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