In this article, we discuss the 11 best climate change stocks to buy according to hedge funds.
In recent times, there has been a shift in focus away from the use of fossil fuels and towards renewable or green energy to counter some of the negative impacts of climate change. According to a leading Zurich-based insurance provider Swiss Re, the global economy could see its output fall by 11% to 14% by 2050 due to the impact of climate change. In monetary terms, it could shrink the global economy by as much as $23 trillion. Such a drastic change would surely impact all the financial markets, including the equity markets. This has brought up the environmental, social, and governance (ESG) criteria as an integral factor in the investing world nowadays. Previously, investors were not too interested in the environmental footprint of an organization, but the transition is underway as governments across the globe have started to allocate funds toward climate change. For instance, the state of California intends to transition completely from gasoline cars to electric vehicles (EVs) by 2035. Furthermore, renewable energy is a key component of the recent Inflation Reduction Act (IRA) introduced by the Biden administration. The act provides a multi-year growth path to support renewable energy organizations. Meanwhile, the European Union (EU) intends to lower its greenhouse gas emission by 55% as compared to the levels in 1990. As of 2020, the EU has already slashed its greenhouse gas emissions by 34% compared to the 1990 levels.
Numerous non-governmental organizations (NGOs) and hedge funds are actively working on making climate change a part of the corporate conversation. An example was the involvement of activist hedge fund Engine No.1 in winning seats on the Board of integrated energy giant Exxon Mobil Corporation (NYSE:XOM) in May 2021 after a shareholders’ vote. These members took on the challenge of changing the view of the company’s leadership on climate change and making Exxon Mobil Corporation (NYSE:XOM) increase its efforts to lower greenhouse gas emissions. This development reflected that corporations are unable to address investor concerns related to climate change and require intervention in the form of activist investors. Before the vote, Exxon Mobil Corporation had requested the shareholders not to vote for the candidates selected by the activist hedge fund as they claimed that they were already doing enough to lower their carbon footprint. The hedge fund had a stake of only $50 million in the behemoth company with a market capitalization of over $250 billion at that time.
Experts believe that Exxon Mobil Corporation has been behind other integrated energy companies in its response related to climate change as it is anticipating further growth in the demand for crude oil and natural gas. Hence, the company is doubling down on this anticipated demand by increasing its capital expenditure to increase output. Meanwhile, other energy giants have lowered their investments in conventional energy sources. Companies like Tesla, Inc. (NASDAQ:TSLA), Shell plc (NYSE:SHEL), and Enphase Energy, Inc. (NASDAQ:ENPH) are among the firms actively working toward reducing their carbon footprint, making them some of the best climate change stocks to buy, according to hedge funds.
Photo by Jason Blackeye on Unsplash
Our Methodology
We picked some of the most popular climate change stocks among the 895 hedge funds tracked by Insider Monkey as of the end of the second quarter. These companies are operating in the green energy sector, providing alternative energy sources and climate-friendly solutions to the growing energy demand.
Best Climate Change Stocks To Buy According To Hedge Funds
11. Canadian Solar Inc. (NASDAQ:CSIQ)
Number of Hedge Fund Holders: 13
Canadian Solar Inc. (NASDAQ:CSIQ) is a Guelph, Canada-based manufacturer of solar photovoltaic (PV) modules and operates large-scale solar projects. The company has the distinction of having 20 manufacturing facilities and serves customers in over 160 countries.
Canadian Solar Inc. is aggressively working on expanding its production capacity with a project pipeline of 31-gigawatt hours (GWh) as of 2022. The company has already delivered 75 GW of solar modules across the world, which is enough to fulfill the clean energy demand of 17.7 million households. Canadian Solar Inc. is performing financially well as it outperformed Q2 2022 revenue and EPS estimates. The company also provided higher-than-expected guidance for Q3 2022 and the full year 2022. The demand for solar installations compounded by an average rate of 33% annually in the last decade and has reached 121 GW as of 2022.
At the end of the second quarter of 2022, 13 hedge funds reported owning a stake in Canadian Solar Inc..
10. ChargePoint Holdings, Inc. (NYSE:CHPT)
Number of Hedge Fund Holders: 17
ChargePoint Holdings, Inc. (NYSE:CHPT) is a Campbell, California-based operator of the biggest EV charging network globally. The company has charging stations situated at 163,000 locations across 14 countries in Europe and North America.
ChargePoint Holdings, Inc. has a market share of over 70% in the fast-charging segment, which is seven times more than the second-placed competitor in the industry. ChargePoint Holdings, Inc. is also involved in selling charging hardware to organizations that have charging stations. Analysts also have a positive outlook on ChargePoint Holdings, Inc. stock as Maheep Mandloi at Credit Suisse initiated coverage on the stock with an Outperform rating along with a target price of $22 in a research note issued to investors on September 7. The analyst believes that ChargePoint Holdings, Inc. will be benefitted from the first-mover advantage, integrated solutions, and less capital-intensive growth model.
As of Q2 2022, ChargePoint Holdings, Inc. was held by 17 hedge funds.
9. Brookfield Renewable Partners L.P. (NYSE:BEP)
Number of Hedge Fund Holders: 19
Brookfield Renewable Partners L.P. (NYSE:BEP) is a Bermuda-based pure-play renewable power platform with exposure to hydroelectric, solar, and wind energy storage facilities situated across Asia, the Americas, and Europe.
Brookfield Renewable Partners L.P. sells the power generated by its facilities to electric utility companies and corporate customers under long-term contracts. The total addressable market (TAM) of Brookfield Renewable Partners L.P. is increasing with every passing day as governments are working aggressively to achieve lower carbon emissions. The US is working on achieving 50% to 52% lower greenhouse gas emissions as compared to the level in 2005. Furthermore, the electricity demand in the US is expected to increase by 80% from the current level by 2050. Experts anticipate that 90% of the new electricity demand will be fulfilled by renewable sources.
ClearBridge Investments shared its outlook on Brookfield Renewable Partners L.P. in its Q1 2022 investor letter. Here’s what the firm said:
“Brookfield Renewable is a pure-play renewables operator and developer headquartered in Canada, focused on international hydro, solar, wind and storage technology. As more private and public institutions announce ambitious carbon reduction initiatives, Brookfield Renewable’s globally diversified, multi- technology renewables business makes it an attractive partner. Brookfield’s development pipeline stands at 18,000 MWs, providing confidence the company can meet its targeted double- digit cash flow growth through to 2025. The market narrative around the energy transition and energy security, along with increasing fossil fuels prices which have driven greater focus on switching to renewables, helped Brookfield shares in the quarter.”
Brookfield Renewable Partners L.P. is popular among hedge funds as one of the best climate change stocks. The stock was held by 19 hedge funds at the end of Q2 2022.
8. Stem, Inc. (NYSE:STEM)
Number of Hedge Fund Holders: 19
Stem, Inc. (NYSE:STEM) is a San Francisco, California-based provider of clean energy software solutions driven by artificial intelligence (AI) and machine learning.
Athena is the company’s most utilized distributed energy resources (DER) optimization solution that results in an energy saving of 10% to 30%. In a research note on September 7, Abhishek Sinha at Northland initiated coverage on Stem, Inc. stock with an Outperform rating and a target price of $24. The analyst thinks that Stem, Inc. is well positioned with a very dominant presence in the complete battery storage solutions segment. Sinha anticipates the IRA and enhancement in battery technologies to drive various industries to execute energy storage solutions. The analyst concluded that Stem, Inc. is way ahead of competitors as it has 50% bookings from repeat customers in its Q3 2022 bookings.
Electron Capital Partners raised its stake in Stem, Inc. by 326% during Q2 2022.
7. First Solar, Inc. (NASDAQ:FSLR)
Number of Hedge Fund Holders: 26
First Solar, Inc. (NASDAQ:FSLR) is a Tempe, Arizona-based manufacturer of solar modules that is taking an active part in combating climate change.
The company, founded in 1999, has one of the biggest solar manufacturing facilities in Ohio. It anticipates its third facility to come online by the start of next year and its fourth facility in the US Southeast by 2025. Following these developments, First Solar, Inc. will have an annual manufacturing capacity of 20 GW. Furthermore, the company does not rely on Chinese components to manufacture its modules. First Solar, Inc.’s strong growth plans merit its inclusion among the best climate change stocks to buy.
First Solar, Inc. is expected to be one of the biggest beneficiaries of the IRA due to the tax credits received on solar manufacturing. This is a key factor driving the company’s rapid capacity expansion. In an update issued on September 9, Biju Perincheril at Susquehanna increased the price target on First Solar, Inc. from $120 to $175 and reiterated a Positive rating.
6. Sunrun Inc. (NASDAQ:RUN)
Number of Hedge Fund Holders: 36
Sunrun Inc. (NASDAQ:RUN) is a San Francisco, California-based provider of battery storage and solar panels.
On August 18, Stephen Byrd at Morgan Stanley increased the price target on Sunrun Inc. from $70 to $79 and reiterated an Overweight rating on the stock. The analyst made the upward revision in target price to incorporate the tailwinds received from the IRA legislation as it will accelerate the de-carbonization efforts in the US and result in higher local manufacturing of solar equipment. This would make the adoption of renewable technologies commercially viable.
Citadel Investment Group raised its stake in Sunrun Inc. by 76% in the second quarter of the year.
Besides Sunrun Inc., stocks like Tesla, Inc., Shell plc (NYSE:SHEL), and Enphase Energy, Inc. are also among the best climate change stocks to buy now.
5. Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders: 39
Shell plc (NYSE:SHEL) is a London-based integrated energy company that is making a rapid transition towards renewable energy. This is evident by the fact that the company has appointed the current head of the renewable division Wael Sawan as the new CEO, effective from January 1 next year. He will take over from current CEO Ben van Beurden.
Shell plc (NYSE:SHEL) is on an ambitious goal of achieving 500,000 EV charging ports globally by 2025. The company is already operating 90,000 charging ports across 46,000 locations globally. Shell plc (NYSE:SHEL) is targeting the biggest EV market in China through its partnership with NIO Inc. (NYSE:NIO) for EV charging and battery swapping facilities at its stations. The growth of the global EV industry is expected to compound by 24.3% annually, from $246.7 billion in 2020 to $1.31 trillion by 2028.
Here’s what Third Point Management said about Shell plc (NYSE:SHEL) in its Q1 2022 investor letter:
“We have continued to add to our position in Shell, as it trades at the same deeply discounted multiple today that it did last year due to a move up in commodity prices. We are engaged in discussions with management, board members, and other shareholders, as well as informal talks with financial advisors. We have discussed various alternatives with the aim of both increasing shareholder value and allowing Shell to effectively manage the energy transition. We have reiterated our view that Shell’s portfolio of disparate businesses ranging from deep water oil to wind farms to gas stations to chemical plants is confusing and unmanageable. Most investors we have discussed this with agree that the company would be more successful over the long term with a different corporate structure. Discussions among the parties have been constructive and will be ongoing since stakeholders clearly see these corporate changes as instrumental, particularly if Shell wishes to become a leader in the energy transition rather than be left behind as a tarnished legacy brand.
Beyond our discussions around corporate structure, there have been two important developments since our last update. First, Shell announced a plan to redomicile its headquarters to the UK and create a single shareholder class. This move allows greater flexibility to modify its portfolio (either through asset sales or spin-offs) and allows for a more efficient return of capital, specifically via share repurchases. Second, fundamental and geopolitical events have highlighted the strategic importance of reliable energy supplies, especially in Europe. Shell’s LNG business, the largest in the world outside of Qatar, will play a critical role in ensuring energy security for Europe. In our view, the value of this business has increased dramatically since our original investment.
While Shell continues to trade at a large discount to its intrinsic value, with proper management we believe the company can simultaneously deliver shareholder returns, reliable energy and decarbonization of the global economy. We look forward to continued engagement with management and other shareholders and to more strategic clarity from the Company.”
At the end of Q2 2022, Shell plc (NYSE:SHEL) was held by 39 hedge funds.
4. SolarEdge Technologies, Inc. (NASDAQ:SEDG)
Number of Hedge Fund Holders: 40
SolarEdge Technologies, Inc. (NASDAQ:SEDG) is a Herzliya, Israel-based developer of solar inverters that play an integral part in how power is generated and managed in the solar PV system.
The inverter ensures that maximum power is generated at the lowest possible cost to enhance the return on investment (ROI). Mark Strouse at JPMorgan increased the price target on SolarEdge Technologies, Inc. from $373 to $419 and reiterated an Overweight rating in an update issued on August 8. The target price reflects a potential upside of over 45% from the closing price as of September 23. The analyst increased the target price by over 12% to incorporate the positive impact of the Inflation Reduction Act (IRA). SolarEdge Technologies, Inc. stock price has already achieved an eightfold increase since 2017.
ClearBridge Investments discussed its outlook on SolarEdge Technologies, Inc. in its Q1 2022 investor letter. Here’s what the firm said:
“SolarEdge Technologies (NASDAQ:SEDG) is a key solar holding that should be able to take advantage of greater incentives for solar installations in many geographies. The company was also a strong contributor for the quarter, overcoming pressures of a higher discount rate on their strong projected future earnings, raw material inflation and supply chain challenges as their long-term value was reaffirmed.”
3. Enphase Energy, Inc. (NASDAQ:ENPH)
Number of Hedge Fund Holders: 53
Enphase Energy, Inc. is a Fremont, California-based company that provides residential and commercial solar and storage solutions.
Enphase Energy, Inc. stock price has rallied by over 57% in the last three months. In contrast, the S&P 500 and the tech-heavy NASDAQ Composite Index have only observed a rise of around 1% during the same period. The company is acquiring numerous companies in the US to expand its footprint for its integrated services. Enphase Energy, Inc. reported stellar Q2 2022 results as it reported three key performance indicators (KPIs) that were above expectations. Enphase Energy, Inc.’s solid fundamentals make it one of the best climate change stocks to buy, according to hedge funds.
Here’s what ClearBridge Investments said about Enphase Energy, Inc. in its Q1 2022 investor letter:
“Enphase Energy (NASDAQ:ENPH) is a key solar holding that should be able to take advantage of greater incentives for solar installations in many geographies. The company was also a strong contributor for the quarter, overcoming pressures of a higher discount rate on their strong projected future earnings, raw material inflation, and supply chain challenges as their long-term value was reaffirmed.”
2. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 59
NextEra Energy, Inc. (NYSE:NEE) is a Juno Beach, Florida-based electric utility company with a generation capacity of 58 GW and a headcount of 14,900 employees. The company already has 16,000 megawatts (MW) of zero-emission power generation capacity through wind energy.
NextEra Energy, Inc. has a significant backlog of renewable energy projects in the pipeline that have a favorable recovery on investments due to support provided by regulatory recovery mechanisms in place. One of its subsidiaries, in the form of FPL, is the biggest solar energy generator in Florida, with an output of 2,700 MW through its 40 facilities. Given the company’s profile and financial outlook, James Thalacker from BMO Capital increased the price target on NextEra Energy, Inc. stock from $92 to $100 and maintained an Outperform rating on September 16. The analyst believes that NextEra Energy, Inc. stock should trade at a premium valuation based on its fundamentals and growth drivers.
NextEra Energy, Inc. is considered one of the best climate change stocks currently, with 59 hedge funds having a stake in the company as of Q2 2022.
1. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 72
Tesla, Inc. is a Texas-based EV company led by billionaire Elon Musk.
Tesla, Inc. is a leading EV maker that also manufactures batteries generating renewable solar energy. The company manufactures solar panels for residential and commercial customers. Tesla, Inc. is making an aggressive foray into the Chinese EV segment as it is working on ramping up production from its Shanghai gigafactory facility.
Adam Jonas at Morgan Stanley thinks that Tesla, Inc. will undergo a “peak China” dependency stage in the next year. However, the supply chain of the EU and NAFTA countries will ramp up as it starts to fall in compliance with the IRA. The analyst has given Tesla, Inc. stock an Overweight rating and a target price of $383 in a research note issued on September 20.
Here’s what Baron Funds said about Tesla, Inc. in its Q2 2022 investor letter:
“In 2014, before we began to invest in Tesla (NASDAQ:TSLA), I called Roger to ask whether he thought Elon Musk’s electric car business would succeed. I did not believe that Roger, an owner of dealerships that sell cars powered by internal combustion engines (ICE) would likely have a favorable opinion of Tesla’s prospects. That was principally for two reasons:
- First, automobile manufacturing and distribution is unusually complicated, capital intensive, and highly regulated, which makes profitability problematic;
- second, cars with ICE motors require extensive annual maintenance, and dealer services revenues, not profits from automobile sales, are the most important contributor to profits of perpetual licensed ICE car dealerships.
Penske Automotive Group is principally an ICE car dealer. Since electric cars are powered by batteries and need little service, franchised dealerships are incented to sell ICE not EV automobiles. Further, Roger had been a long-term director of General Motors. General Motors’ ICE automobile business would be disrupted if Tesla were successful.
Regardless, I was right to have spoken with Roger. That was since he outlined numerous issues we needed to consider, study, and question before we determined whether we believed Tesla could be a successful business…before we ultimately chose whether to invest in that company.
When we completed our initial due diligence on Tesla, which diligence has been ongoing since 2014, we decided to invest $360 million in Tesla over the next two years. I then called Roger and outlined why I thought we could earn 20 times our capital over the next 10 years. Roger was so certain I was wrong that he offered to bet me $1 million that Tesla would fail. “Roger, I can’t bet you a million dollars. First, if you are right, I couldn’t afford to pay you. Second, if I’m right, you’re my friend, and I couldn’t take your money.” We settled on a dinner bet…”
Of the 895 hedge funds in Insider Monkey’s database, Tesla, Inc. was held by 72 elite funds as of Q2 2022.
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This article is originally published at Insider Monkey.
