As we’ve seen from the past couple of months, the coronavirus pandemic has caused a massive disruption in both the Canadian and world economies. Aside from business closures, job reductions, and travel restrictions, other key areas of our world economy have been affected – including energy. One Wood Mackenzie study suggests that energy storage installations across the world could drop by as much as 19% compared to original projections before the coronavirus first hit. Likewise, according to the International Energy Agency, energy use across the world is expected to drop about 6% over the course of the year, which has impacted renewable energy stocks.
Considering this reality, this is just one of many indicators hinting that renewable energy is a viable investment right now. This article outlines why investing in renewable energy stocks is a good idea, what to invest in, and how to invest in renewable energy stocks.
Why is Renewable Energy a Good Investment?
Renewable energy is any energy that’s derived from renewable resources that are replenished at a rate that is equal to or faster than the rate at which they are consumed. It includes everything from energy generated from solar, wind, geothermal, hydropower and ocean resources, biogas and liquid biofuels. So renewable energy stocks are tied to companies that produce the capability for us to leverage these types of energies. Globally, renewable energy is a massive sector and a promising place to put your investment dollars. In 2015, twice as much international capital was invested in clean energy as in fossil fuels.
From a pure investment standpoint, the renewable energy sector took a beating in late March with the rest of the market but has slowly begun to see an upward trend. Take a look at the year-to-date performance of the S&P Global Clean Energy Index, as a barometer:
At the end of February 2020, just before the COVID-19 pandemic hit, it peaked at around $912. As of this writing, it sits at just over $803 – nearly 12% down from where it was earlier in 2020.
Now, that doesn’t necessarily guarantee it’s a good investment (as we know, past performance isn’t an indicator of future performance), but let’s explore the value renewable energy actually drives, so you can connect the dots.
What Value Does Renewable Energy Drive?
There are a few key indicators of the value of renewable energy:
- Renewable energy can give us an exponentially higher long-term return on investment than traditional fossil fuels. An International Renewable Energy Agency study indicated that investing in renewable energy as a world economy would cost more initially, but by 2050, it would yield economic benefits up to eight times as high.
- The fossil fuel industry has been crushed by the COVID-19 pandemic. Some of the leading fossil fuel companies lost on average 45% of their market value during the height of the pandemic. This not only provides an opening for renewable energy to take hold but also opens our eyes to the possible value of fossil fuels.
- Current projects from IEA show that renewable energy can provide new jobs, and thus more economic growth around the world. It’s projected that by 2050, we could reach more than 40 million jobs just in the renewable energy sector globally (today, there are roughly 11 million), while fossil fuel is projected to lose more than 6 million jobs during that same time.
How Do I Invest in Renewable Energy With Little Money?
If you’re a first-time investor, you can easily learn how to start investing in Canada. Even if you only have $1,000, you can get started investing in renewable energy in a jiffy. Here are some pointers to kickstart your renewable energy portfolio:
DIY Investing with an Online Brokerage
The best way to invest in renewable energy stocks is to open a self-directed investing account and build your own portfolio. Since discount brokerages charge little to no fees, you’ll save a lot of money with this smooth move. For instance, Questrade offers free ETF purchases and you can open an account with just $1,000 to start. A bonus: Young and Thrifty readers who open a Questrade account get $50 in free trades.
Or try out Wealthsimple Trade – a mobile-trading platform that offers zero-commission stock and ETF trading. That will allow you to pick a handful of renewable energy stocks without spending a dime in fees. Plus, you can take advantage of our exclusive promo offer: open a new Wealthsimple Trade account, and get a $25 cash bonus + $0 commission trades. All you have to do is fund at least $150.
If you’re DIY investing, here are my key recommendations:
- Don’t Put More Than 5-10% of Your Total Portfolio Value in Renewable Energy. While it’s a sound investment, you always aim to diversify as much as possible (which is why ETFs are so great). So, if you choose a couple of stocks that I’ve listed above (or some of your own choices) make sure you balance those out with a handful of other stocks. Going with an individual stock strategy, I recommend a minimum of 10 stocks and a maximum of around 30.
- Start With 1-3 Stocks That Focus on Different Renewable Energy Sectors. Start small: pick between 1-3 stocks until you get a feel for the sector and how the stocks are performing. For instance, if you went with my top two picks, Renewable Energy Group Inc (REGI) and Enphase Energy Inc (ENPH), you’d have two companies in renewable energy, but that focused on different things. Enphase Energy Inc (ENPH) does more solar power work, while Renewable Energy Group Inc (REGI) operates 14 biorefineries and a feedstock processing facility. If you put $1,000 into Questrade today, you could buy about 18 shares of REGI and 10 shares of ENPH (and still have a little cash leftover). On a $10,000 total portfolio value, you’re right around 10% – which is great.
- Add ETFs and index funds to your portfolio. ETFs are low-cost and diversify your portfolio, offering a buffer against market volatility. Investing just $1,000 using Wealthsimple Trade, you could buy 15 shares of Invesco Solar ETF (TAN) and about 19 shares of Invesco WilderHill Clean Energy ETF (PBW). That would give you immediate diversification in both clean energy and solar energy and could be a key part of your overall portfolio for years to come.
Using a Robo Advisor
If you’re not a fan of DIY investing, a robo-advisor makes investing a cinch, especially since your money is automatically rebalanced. Many robo advisors offer SRIs, ESGs, and Impact Investing – including our top choice Wealthsimple. Their SRI (Socially Responsible Investing) portfolios give you exposure to a handful of ETFs that deal with renewable energy. For instance, their SRI portfolio has iShares MSCI ACWI Low Carbon Target ETF (CRBN) which tracks global stocks with a lower carbon exposure than the broader market, as well as Invesco Cleantech Portfolio (PZD) which tracks companies in the cleantech industry (including clean energy) with higher performance potential.
Now is a great time to sign up because Wealthsimple is offering Young and Thrifty readers an exclusive deal: Get a $25 cash bonus when you open and fund your first Wealthsimple Invest account (min. $500 initial deposit).
Renewable Energy Investing Options
Clearly, renewable energy provides has economic value, as well as a high potential for investment value. Let’s take a look at some of the best individual stocks and ETFs and index funds, you can invest in right now. To keep things simple, we’ve used “green energy” and “renewable energy” interchangeably.
What Are the Best Green Energy Stocks?
In general, I recommend investing in ETFs and index funds rather than individual stocks. But if you’re comfortable and you have a strategy, below are some of the stocks that I would consider right now in the green energy space. Note that I tend to lean toward value investing, looking for what I would consider undervalued stocks based primarily on the company’s financials, if their earnings are growing, and if they pay a dividend.
|Company||Ticker||Book Value Per Share (BVPS)||Tangible Book Value Per Share (TBVPS)||Earnings Per Share|
|Enphase Energy Inc||ENPH||2.21||1.76||1.24||NO||6/10|
|Renewable Energy Group Inc||REGI||29.05||28.33||9.19||NO||7/10|
|Canadian Solar Inc||CSIQ||23.46||23.08||2.84||NO||4/10|
|Nextera Energy Partners LP||NEP||33.33||-13.60||-1.50||YES||3/10|
These stocks are a starting point for your research, and the Value Score doesn’t necessarily indicate if a stock is “good” or “bad,” but a lower value score should prompt you to do more research.
For example, Nextera Energy Partners LP (NEP) is a wind power company with a lot of potential, and their financials are moving in the right direction, but they’re still not perfect. Yet, they pay a dividend, so there are some things to like, but not without risk.
Another stock that I didn’t put on this list, but you might come across, is Tesla (TSLA). Technically they’re an auto manufacturer, but one could argue they’re in renewable energy posse. There are a lot of mixed opinions on this stock, so you’ll need to make your own call here.
What Are the Best Green Investment Funds?
If you’re going to buy green investment funds on your own rather than through a robo advisor (more on this later), here are a few recommendations to get you started:
|Fund||Ticker||YTD Performance||Expense Ratio|
|Invesco Solar ETF||TAN||10.52%||0.70%|
|iShares Global Clean Energy ETF||ICLN||2.85%||0.46%|
|ALPS Clean Energy ETF||ACES||-4.08%||0.65%|
|Invesco WilderHill Clean Energy ETF||PBW||9.35%||0.70%|
Each of these funds focuses on clean/green/renewable energy, but to get a sense of the specific investments, I’d encourage you to research each of them individually. What’s very interesting, though, is the performance year-to-date compared to some other popular “non-clean” energy funds. For instance, one that comes highly recommended by some experts is Energy Select Sector SPDR ETF (XLE), which has seen an abysmal performance of -34.29% as of this writing. A lot of this has to do with the price of crude oil dropping so low. (It’s now bounced back, but it’s been very unstable this year.) Either way, this begins to justify the investment in renewable energy funds.
This should give you a great start to investing in renewable energy, as well as outline why it’s such an important investment to make – not just from an ROI perspective, but also because of the global impact these companies can have in the long-term.
Remember, don’t overdo it. Only invest 5-10% of your portfolio in renewable energy and make sure you balance your investments with other important sectors, such as oil (technically part of the energy space, but a completely different lens that I HIGHLY recommend getting exposure to), materials, financials, communication, IT, and so on. It’s all about achieving balance and diversifying your investments as much as possible.
Not sure if renewable energy stocks are for you? Take a look at the big picture and check out The Best ETFs in Canada and The Best Investments in Canada. That’ll give you a leg up on building a balanced, diversified portfolio that works for you.