Three Stocks to Ride The $48 Trillion Energy Revolution

These three stocks could make you rich

Clean-energy stocks and exchange-traded funds are on a tear this year, sharply outperforming the broader market and traditional fossil-fuel investments.  

The promise of clean tech – creating energy from renewable resources – has lured investors to the space before only to get burned. After years of underperforming is now different or are buyers once again flying too close to the sun? 

Energy market watchers say what makes today different from 10 years ago, when interest in clean tech was also hot, is that these power sources are now economically viable as subsidies fall away.  

Over the past 10 years, the cost of solar panels has plunged 82%, while onshore wind costs have skidded 39% and the cost of offshore wind has fallen 29%, according to the International Renewable Energy Agency.  

Peter Mcnally, global lead for industrials, materials and energy research firm, Third Bridge, says aggressive investment by utilities in renewable energy has lowered the cost of clean tech and showed it was viable at scale.  “Clean-tech businesses are starting to stand on their own, and I think they got a big boost from utilities,” he says.  

Some of the big oil majors like BP are taking alternative energy seriously, McNally says, pointing to BP’s announcement that it will allow oil production to decrease by 40% over the next decade while investing $5 billion in clean tech by 2030.

There’s no getting around the fact that renewables are going to grow and continue to take global share of energy production.  But it’s easy to get caught up in the excitement and invest in companies that are far more cyclical, because as much as there’s growth, there’s parts of the industry that are still exposed to extreme demand cycles that can shift from year-to-year.  Investors should look for companies that have competitive advantages that protect themselves against those cycles.  Seek out companies that can generate consistent steady cash flow or have some technological advantage that gives them a competitive advantage.  With these parameters in mind, here are three stocks to consider.  

Brookfield Renewable Corporation (BEPC)

Brookfield Renewable Partners (BEP) operates one of the world’s largest publicly-traded renewable power platforms.  BEPC (the corporate sector of BEP) was created to provide investors with greater flexibility in how they access BEP’s globally diversified portfolio of high-quality renewable power assets. 

Five years ago hydroelectric power accounted for 80% of BEP’s portfolio.  The heavy handed allocation gave BEP the ability to take those consistent cash flows and reinvest, jumping into the growing renewable wind area and solar through acquisition of TerraForm Power in 2017.   

BEP is still a global leader in hydroelectric power, which currently comprises approximately 64% of its portfolio.  A smart move considering heavy competition in the solar industry.  Not to mention, one of the benefits to hydroelectric is that storage is built in (through use of dams), which removes some of the intermittency issues of solar and wind and makes hydro a more predictable source. 

Asset allocation isn’t BEP’s only strong point.  One of their primary goals when it comes to returning value to investors is to grow the distribution dividend around 8% or 9% every year.  BEP beats that goal just about every year, consistently outperforming that goal.  

BEPC is a great stock town because the company has a focus on making sure they own the right assets, and they can predictably generate cash flow that they can return back to investors on a consistent basis. 

NextEra Energy (NEE)

NextEra Energy is the world’s largest producer of solar and wind energy.  They’re owner of Florida Power & Light along with some other utilities and businesses that do wholesale energy.  They’re also the sponsor of NextEra Energy Partners, which is primarily renewable energy focused.  Renewables is a big part of NextEra’s business.  NextEra has emerged as the world’s most valuable utility, largely by betting on utilities, especially wind.  

NextEra had about 18 gigawatts of wind and solar farms at the end of last year, enough to power 13.5million homes.  And it’s expanding significantly, with contracts to add another 12 gigawatts of renewables. 

For decades, NextEra Energy has been reducing emissions through the development of renewable energy and modernization of its generation fleet.  The company’s goal is to reduce CO2 emissions rate 67% by 2025, from a 2005 baseline.  This equates to a nearly 40% reduction in absolute CO2 emissions, despite the company’s total expected electricity production almost doubling from 2005 to 2025.  Working toward this goal, as of year-end 2019, NextEra has reduced its CO2 rate by 52.2%  and the absolute CO2 tons by 20% while their generation increased by 67.5%.  That’s pretty impressive.  

Investors have endorsed NextEra’s clean-energy strategy, with renewable energy becoming both mainstream and desirable.  At least a dozen U.S. states have policies that will eventually mandate completely clean power grids.  Plus, Democratic presidential nominee Joe Biden has proposed a green electrical system in the U.S. within 15 years.  

“Renewable Energy is not a niche investment anymore,” said Kit Konolige, a utilities analyst with Bloomberg Intelligence.  “It’s a big industry.”  And NextEra Energy seems to be poised for a lion’s share in the future.  

NextEra has a very strong track record of success.  Between 2004 and 2019, their adjusted earnings per share grew at a compound annual growth rate of 8.4%, while dividends grew at a compound annual growth rate of 9.4%, that’s incredible growth over a 15-year period.  Over the past five years, the stock is up 231% on a total return basis.  That type of performance is not typical for a utility company which indicates that NextEra truly  is an outlier in the industry. 

Renewable Energy Group, Inc.  (REGI)

Renewable Energy Group, Inc. is leading the energy industry’s transition to sustainability by transforming renewable resources into high-quality, cleaner fuels.  Renewable Energy is an international producer of clean fuels and North America’s largest producer of biodiesel.  The company’s solutions are alternatives for petroleum diesel and produce significantly lower carbon emissions. 

Renewable Energy Group utilizes an integrated procurement, distribution and logistics network to operate 13 biorefineries in the U.S. and Europe. 

 In 2019 REGI produced 495 million gallons of cleaner fuel delivering over 4.2 million metric tons of carbon reduction. The company also sold 700.3 million gallons of fuel and generated $2.6 billion in revenue.  Net income from continuing operations of $381.1 million or $9.01 per share. The company’s expected earnings growth rate for the current quarter is 76.8%