Many people are willing to dismiss the world’s push to net zero as a woke fad and turn their noses up at promising sustainable stocks. But when you look further back into history, you’ll see that we’ve changed our energy mix several times. We’ve consistently upgraded our energy markets from the days of burning logs on the fire for energy to coal and now fossil fuels. The push toward cleaner energy is another step in that journey and comes with a sizeable investment opportunity. Whether you believe climate change is real or not, you’re leaving money on the table if you ignore sustainable energy stocks.
Renewables are the first thing that springs to mind regarding sustainable energy. This is a huge growth space as the technology to harness and store the power of wind, water, and sun improves. According to the IEA, renewables will be the biggest driver in the push toward net zero. There are many sustainable stocks to buy in the renewable energy space. From the hardware makers to the utilities that run and distribute the power it generates.
But renewables alone won’t be enough to get us there. Hydrogen is another promising puzzle piece that unlocks a separate class of promising sustainable stocks. In particular, green hydrogen, made without fossil fuels, will account for a much larger share of our energy use. This is a promising space with very few players, making it a good place to start looking for sustainable stocks to buy.
Sustainable Stocks to Buy: SSE (SSEZY)
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Utility stocks like SSE (OTCMKTS:SSEZY) tend to slow buyers you buy and hold to collect a reliable dividend. SSE offers this somewhat, although its dividend’s been rebased lower to fund its renewables plan. Instead, SSE is a utility with a growth story, making it an interesting pick among sustainable stocks to buy.
For now, renewables comprise only a small portion of its portfolio, and poor weather last year meant they haven’t quite lived up to their potential. However, the group benefitted from last year’s soaring energy prices and is using that cash windfall to accelerate its renewables plans. The group announced in late May that it would funnel £40bn into its renewables efforts to produce, store, and distribute more clean energy in the U.K.
The decision to go all-in on renewables makes SSE a unique play among its peers, but there are risks. The group will struggle to meet its targets when the wind doesn’t blow, so it’s venturing somewhat into uncharted waters. With that said, the balance sheet looks strong enough to withstand the planned investment, though it will start to spread itself fairly thin. However, given that Europe is leading the charge on sustainable energy, SSE looks well-placed to be a key cog in the transition toward net zero.
Brookfield Renewable (BEPC)
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Brookfield Renewable (NYSE:BEPC) offers investors a diversified pure play on the energy transition, making it one of the best sustainable stocks to buy. The group’s business consists of various low-carbon energy projects, including hydroelectric, wind and solar, and energy storage. It’s one of the few energy transition pure-plays on the market right now and makes for a good pick if you’re looking to capitalize on the push to net zero over the next 30 years.
Like SSE, Brookfield’s seen a windfall from higher energy prices, which has supercharged cash flow. Much of its growth to date has come from strategic acquisitions, but it’s promising to see the group has also been able to deliver organic growth as well. Its power contracts are tied to inflation, so the ongoing worries about persistently high inflation haven’t stung Brookfield as much as some other companies.
The extra cash is being pushed into the most profitable parts of the business, and management’s also looking to trim some of its excess fat—selling businesses that aren’t aligned with its growth strategy. Brookfield’s has a strong growth runway ahead and is investing heavily in taking off, but it also shares some of its profits with investors by way of a respectable near-4% dividend yield.
Air Products (APD)
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Air Products (NYSE:APD) represents a play on green hydrogen, an important part of the energy transition and a good place to find promising sustainable stocks. Chemicals businesses like Air Products don’t tend to make it onto lists of sustainable stocks because some of their operations come with the risk of improper disposal and spills. But those companies looking to get a foot in the door of the clean energy transition hold a lot of potential, and APD is one such stock.
The group’s creating the largest green hydrogen facility in the U.S. in addition to some of its other low-carbon hydrogen initiatives in other parts of the world. Notably, clean hydrogen isn’t Air Product’s bread and butter; in fact, it isn’t even profitable yet. But it is expected to deliver some tax breaks under the latest US legislation, and it should grow into a much larger, more important part of the business over time.
For now, Air Products is primarily an industrial gas supplier. It’s a relatively safe place to ride out an economic storm because customers tend to have long-term contracts, so revenue is somewhat reliable. The group’s also working to cut costs and improve profitability, which should boost margins significantly in the near term.
On the date of publication, Marie Brodbeck did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.
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