I firmly believe the world is in the early stages of a tectonic shift away from fossil fuels towards green energy. It might take several decades for this transition to take hold, but I reckon this could be one of the best investment themes to buy into right now.
And there are a couple of green energy stocks I’d buy right now to invest in this theme.
Green energy stocks
One of the exciting things about the green energy revolution is there are so many different ways investors can take part. I want to own companies involved in all stages of the process. This way, my portfolio should benefit no matter what the outcome.
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At the bottom of the pyramid, I’d own mining giant BHP.
As the world moves away from hydrocarbons and focuses on clean, green energy, electricity transmission and production will increase. This could translate into higher demand for copper. That should benefit BHP, which is one of the world’s largest producers.
That said, while copper will play a significant role in the green energy revolution, as one of the world’s largest miners, BHP has a pretty poor environmental record. This could hurt the company’s growth if it has to pay to clean up its act.
Another company I’d be buying in electricity space is XP Power. I think this enterprise stands one stage above BHP as it produces critical power components for the power network.
Management reckons demand for the company’s products will increase in line with growing global electricity production and demand. That’s why I’d buy the stock, although I’m also aware this is a highly competitive industry. XP Power is a market leader today, but it might not remain so indefinitely.
Generation and storage
Moving further up the pyramid, I’d own power producers SSE and Greencoat Wind. Both of these companies are investing heavily in renewable energy generation. Greencoat owns wind farms, while SSE has a more diversified asset base. Some investors might be more attracted to this organisation for that reason.
However, I’d own SSE for its growth. The firm has set out plans to triple its renewable energy generation by 2030. Key challenges these companies might face include overinvestment and overproduction, which may cause return on assets to decline and make it harder for them to earn a profit.
The final green energy stock I’d buy for my portfolio is Ceres Power. This company is highly speculative, but it’s making progress and has enormous potential.
It’s developing hydrogen power cells, which will help solve a growing problem for the renewables industry to store energy. The firm has deep-pocketed backers on board with engineering giant Bosch and Chinese engine-maker Weichai Power, both providing funding recently to help the business move forward.
However, the enterprise is still losing money, and it could only be a matter of time before a competitor establishes a similar, if not better, product. This is a potentially high-risk but also a high-reward investment opportunity.
