Your portfolio’s main objective is to earn money, but you don’t have to sacrifice your ethics in the pursuit of profits. You can put social responsibility at the heart of your investment activities, and in addition to being ethical, this approach can also be extremely lucrative.
Clean energy is a great place to start. This guide will point you in the right direction by looking at the benefits of clean energy stocks and explaining the factors you should consider when choosing clean energy investments.
Clean Energy Stocks, Explained
Clean energy stocks are stocks in companies focused on water, wind, or solar energy. These energy production methods are considered to be “clean” or “green” because they aren’t associated with the environmental harm created by fossil fuels such as coal or oil.
Wind, water, and solar energy are also renewable resources, meaning they cannot run out. These energy sources are more sustainable for the planet, and they are also more sustainable for consumers.
Why Invest in Clean Energy Stocks
Clean energy stocks can include stocks in companies dealing with wind turbine farms, solar batteries, hydrogen fuel cells, electric vehicles, and similar areas. Investors are interested in these stocks for many reasons, but here are some of the main advantages of investing in clean energy.
1. Clean Energy Is Growing
Clean energy is not used as widely as fossil fuels right now, but these energy sources are growing in popularity. Wind and solar have been the fastest-growing types of energy for the last 20 years, and that trend is showing no signs of slowing down.
2. Clean Energy Is the Future of Energy
Fossil fuels are becoming outdated. Consumers and businesses are shifting their behaviors and attitudes. Half of the world’s energy is expected to come from wind and solar by 2050. Investing in clean energy stocks positions your portfolio to profit from this change.
3. Innovation Is the Heart of Clean Energy
Innovation drives the clean energy industry. It also tends to improve companies and lower costs, regardless of the industry. This leads to more profits for the people who hold stocks in these companies.
The political climate also has the potential to benefit clean energy stocks. President Biden’s administration is expected to make laws that benefit the clean energy industry. Even traditional energy companies have noticed the potential of clean energy. That’s why Shell has invested over $3 billion in clean energy since 2016.
Tips for Choosing Clean Energy Stocks
The benefits of investing in clean energy are clear, but how do you choose the right stocks? You need to consider several different elements if you want the stock to be profitable, and although you’re focusing on a specific industry, you still need to diversify your portfolio as much as possible.
1. Choose the Type of Clean Energy Investment
You can handpick a clean energy stock from a specific company or invest in multiple stocks at the same time through an exchange-traded fund (ETF). An ETF gives you exposure to several assets (similar to a mutual fund) but trades like a stock.
2. Decide If You Like Certain Themes
You can choose a clean energy theme to guide your investment strategy rather than narrowing in on specific companies. You may want to focus on companies centered around mobility, such as e-bike manufacturers or lithium battery developers, for example. Choosing a theme is a great way to capitalize on trends in the industry while minimizing your risk through multiple diverse investments.
3. Examine the Company’s Growth Trends
Investing in a clean energy stock effectively means that you’re becoming a part-owner of that business, and its losses and successes become yours. Look at how the company’s growth has been trending before buying its stocks.
A stock that is rapidly increasing in value right now does not promise to continue increasing in value. It may grow quickly for a while and then experience a drop. Look for patterns of growth. Even small regular growth can be a positive sign.
4. Look for a Competitive Edge
The clean energy industry is growing and poised for more growth, but that doesn’t mean every clean energy stock is a winner. You should look for a competitive edge when evaluating different stock options. How does the company stand out compared to its competitors?
What is the company doing to be successful? How is it harnessing innovation? You want to invest in companies that have the potential to outperform peers in their industry.
5. Compare Debt-to-Equity Ratios
Look at the balance sheets of clean energy companies while doing your due diligence and use their debt-to-equity ratios to compare them. You can calculate debt-to-equity ratios by dividing the business’s total liabilities by shareholder equity.
6. Find the Price-Earnings Ratio
The price-earnings ratio can help you determine if a clean energy stock is over- or undervalued. Sometimes stocks are overvalued due to heightened investor interest. They may be undervalued because they’re failing to get enough attention.
Divide the share price by the company’s earnings per share to find its price-earnings ratio and use the ratio to compare different stocks. Ratios like this are a useful way to ensure you’re comparing apples with apples, even if the companies are different sizes or focused on different aspects of the clean energy industry.
7. Look for Dividend Increases
Look at how the company is distributing its dividends. A consistent increase in dividend payments usually indicates stability, but you also have to consider other factors related to the company’s operations.
High dividends are not always a positive sign — companies that are paying too much in dividends may not be investing in themselves. They may be desperate. A cut in dividends, similarly, can be a sign the business is in decline or a smart change to get through rough times.
A financial advisor can help you choose the right clean energy stocks to add to your portfolio. They work with stocks every day and can help you do adequate due diligence before making your next investment.
Contact Bogart Wealth to Talk About Clean Energy Stocks
Contact Bogart Wealth today to talk about adding clean energy stocks to your portfolio or to touch base about your other financial planning needs. We offer independent investment management, financial planning services, tax planning, and more, and we look forward to helping you preserve your legacy.