Are renewable energy stocks a no-brainer buy?

Despite a decade of volatility, our writer is optimistic about the long-term future of renewable energy stocks. Should he invest in them today?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Solar panels fields on the green hills

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

My investments and interest in renewable energy stocks are based on optimism for a greener future. Moreover, 2022 has highlighted the risks in fossil fuel dependency. Due to climate change and energy security concerns, there’s huge investment from public and private sectors into a variety of renewable energy sources.

Thinking ahead 25 years, it’s hard for me to imagine a world that hasn’t significantly shifted towards renewables. However, the returns I might get from an investment in such stocks are less predictable. Let’s asses the cases for and against investing in them today. 

Volatility

The S&P Global Clean Energy Index can be considered a benchmark, aiming to measure the performance of companies in global clean energy-related businesses. This year the index has declined 11%. That’s a dismal return considering fossil fuel giants like BP, Shell and Exxon are up 33%, 40% and 74%, respectively. The index has also been hugely volatile over the last decade.

YearTotal Return
2012-18.01%
201358.37%
20143.96%
201522.15%
2016-19.86%
201713.04%
2018-0.16%
201937.75%
2020137.82%
2021-23.84%
Yearly returns of the S&P Global Clean Energy Index

My main case against buying renewable energy stocks today is this volatility. To clarify, I’m not just talking about the fluctuations in stock prices but the uncertainty that these trends may represent. Will future energy be sourced from batteries, hydrogen, nuclear, solar, wind, a combination of all the above or something else entirely? This is unclear to me. Even if I’m able to accurately predict this, which company or companies will come out on top?

For example, hydrogen looks like a promising alternative to fossil fuels. If it becomes a key piece of a net-zero puzzle, will innovative UK companies such as ITM Power and Ceres Power be the beneficiaries? Or will today’s leading energy companies lead the way?

They certainly have the financial resources to do so. Last quarter, Exxon smashed records when reporting its highest quarterly profits ever. Other fossil fuel energy companies are enjoying similar windfalls. Perhaps the best investment in renewable energy stocks today is actually an investment in the oil and gas juggernauts.

Needle in a haystack

I believe there are comparisons with the dotcom bubble in the 1990s. There were a number of innovative companies within a new and largely misunderstood tech sector. However, many went bust or their share prices never returned to their highs. Despite this, an investment in the tech heavy Nasdaq Composite would have rewarded patient investors over two decades.

Renewable energy stocks aren’t in a bubble. Yet this example suggests I may be wise to invest in a promising sector rather than betting on individual stocks. Why find the needle in the haystack when I can just buy the haystack? It also highlights the importance of taking a long-term approach.

One option is to invest in the iShares Global Clean Energy ETF. It’s one of the most popular renewable energy ETFs and aims to reflect the returns of the S&P Global Clean Energy Index. I’d be happy adding it to my portfolio in the coming months. But if I do, I’ll strap myself in for a long and bumpy ride.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Nathan Marks has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

The Nvidia share price falls! Here’s what I think happens next for the S&P 500

Jon Smith reviews the overnight results from Nvidia and explains why this could stall the S&P 500 performance through to…

Read more »

Investing Articles

Down 15% today, is this FTSE 100 share too cheap for me to miss?

JD Sports' share price has tanked after the FTSE 100 share released another profit warning. Is this the opportunity I've…

Read more »

Investing Articles

Up 8% today, is this FTSE 100 growth stock a slam-dunk buy for me?

Halma's share price is soaring thanks to another headline-grabbing trading update. Is the FTSE 100 stock now too good for…

Read more »

Investing Articles

With a P/E ratio of just 10.5 is now a brilliant time to buy a cut-price FTSE 250 tracker?

Harvey Jones says a recent dip in the FTSE 250 leaves the index trading at bargain levels. One stock in…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

To build a passive income flow, I’d follow this Warren Buffett approach

Warren Buffett has set up passive income streams most people can only dream about. Our writer sees some practical lessons…

Read more »

Growth Shares

As the boohoo share price falls, could it become a penny stock in 2025?

Jon Smith outlines some of the recent problems involving the boohoo share price and considers if things could get even…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Here are the worst-performing FTSE 100 shares over the last 5 years

These five FTSE 100 shares have been complete duds over the last half decade. But is there potential for a…

Read more »

Investing Articles

Nvidia stock has tripled this year! Can it keep rising?

Nvidia's latest sales update showed strong growth and the stock's been on a tear so far in 2024. So is…

Read more »