- Last year was a rough year for the relatively new green energy industry, with high interest rates in a financing-heavy sector
- Positive legislative changes happened last year, opening up opportunities for these companies to grow in an environment where inflation has been consistently easing
- Investing in some of the big players within the green energy sector could be a wise move for investors
In 2022, the relatively new green energy space had a rough year in the stock market. These companies tend to have additional financing needs in their infancy and are particularly susceptible to the negative impacts of Federal Reserve interest rate hikes.
Fortunately, some good things happened for companies dedicated to positive climate impact. The passage of the Inflation Reduction Act and various executive orders created opportunities for growth and tax credits for these companies.
This means that it might be worth looking into companies that are currently down since, depending on the individual company’s profile, there could be new potential for future growth. And Q.ai has you covered to tap into that potential growth.
NextEra Energy, Inc. (NEE)
Florida is on the frontlines of climate change and has adjusted its utility ecosystem accordingly. NextEra Energy, one of the world’s largest solar and wind energy producers, owns Florida Power & Light Company, providing more than 11 million Florida residents with electricity. The company also has other subsidiaries that provide green energy solutions to the market.
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NextEra Energy’s stock has been on a slow but steady upward trend since 2012, but things started to take off in the second half of 2020. While there have been some rather large ups and downs since, NEE is currently trading at $74.24 as of February 1, 2023. This is compared to $60.68 on December 20, 2019, the stock’s highest value of that year.
The $74.24 number represents a fall after the company released its Q4 2022 earnings report, which was disappointing compared to market expectations. During this call, it was revealed that Florida Power & Light would get a new CEO.
Regardless, NextEra Energy is the third largest energy supplier in the U.S. This is no small feat for a green energy company, and it falls behind only Chevron
and Exxon Mobil. It is generally thought that the company will benefit from recent American legislation in the years ahead, like the Inflation Reduction Act.
Brookfield Renewable Partners (BEP)
Based in Toronto, Brookfield Renewable Partners is one of the world’s largest suppliers of hydroelectric energy. It also has an increasingly extensive portfolio in the wind and solar energy spaces, with additional work in energy storage.
BEP has been trending upward since 2019. It was trading at an annual high of $25.30 on December 6, 2019, and peaked at $49.36 on January 22, 2021. It’s been a bumpy ride along the way, with the biggest slump happening in late September and early October 2022, when it fell from $38.35 down to $27.90 over the course of about three weeks.
Brookfield Renewable Partners funds its growth projects through cash flow and debt. Last fall, investors were feeling particularly pessimistic. Inflation was still coming off its peak of 9.1% in June 2022, and the Fed continued to raise rates aggressively. Companies that use debt to grow their business are prone to suffer during these times, as borrowing gets more expensive, cutting into potential future profit.
On February 1, 2023, BEP closed at $28.68. It might be undervalued, as the company has plans to triple its capacity over the next decade. It will also be interesting to see what happens to this debt-dependent business’s stock value if central banks slow their interest rate hikes and inflation continues to fall.
Hannon Armstrong Sustainable Infrastructure (HASI)
Hannon Armstrong Sustainable Infrastructure was the first U.S. publicly traded company dedicated to investments that combat climate change. With $9 billion in managed assets, the Annapolis-based business invests in companies that are carbon neutral or carbon negative, with a few exceptions for those that make other net positive impacts on the environment.
HASI had a tough year in 2022. With the Fed raising rates, the investment firm was poised to be particularly hard hit. The stock came into the year with a trading price of $53.12 at close on December 31, 2021. It ended the year at $28.98 at close on December 30, 2022. Today, it’s trending upwards ahead of a quarterly earnings call, closing at $37.72 on February 1, 2023.
The company made headlines over the past week and a half for major investments from NBW Capital LLC and Jeffery Eckle, Hannon Armstrong’s own CEO. An investment like this from a company’s executive would indicate that it’s reasonable to expect there won’t be any bad surprises in the upcoming earnings call.
If the Fed does slow its increases on interest rates, this could have an outsized positive impact on a company like Hannon Armstrong. Things would be even better if inflation ever gets to 2% and the Fed pulls back entirely.
General Motors (GM)
Seeing a prominent auto manufacturer on a list of green energy investments can be jarring. After all, most ESG funds include some of the biggest financiers and contributors to climate change. Nevertheless, GM is on this list for good reason.
Yes, the company makes carbon-emitting cars and trucks, few of which have been net neutral on the environment. True, it has those same carbon-neutral goals that mask similar companies’ harm to the environment. However, GM holds its suppliers to those same carbon-neutral standards and is poised to be the largest EV manufacturer over the next seven years.
Like most companies, GM’s stock has been on a journey since the pandemic hit. After a startling drop to $18.14 on March 20, 2020, the stock surged to $63.40 on November 12, 2021, and then had a terrible year in 2022, like much of the stock market. Today, it is trading at near-pre-pandemic levels, closing at $39.30 on February 1, 2023.
The immediate future isn’t necessarily the most important thing with this stock. GM has been investing in its EV production platform, Ultium, and is projected to overtake Tesla in the race for EV market share by 2030. At that point, GM is expected to have 18.3% of the market share, while Tesla, a surprisingly less green company at the moment, will only have 11.2%.
The bottom line
Last year was a rough year for green company stocks since most of these industries are in their early years and still rely on debt for financing. In 2022, it was tough to take on debt without incurring a ridiculously high interest rate.
Fortunately, inflation is on its way down for the time being, and rates should eventually follow. Plus, recent legislative changes have positively impacted future outlooks for climate-friendly companies. If you want to hop on this trend without researching every company in the space, you can use Q.ai’s Clean Tech Investment Kit to get started.
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