A paradigm shift in political consensus in 2021 saw world leaders announce renewed efforts to move towards carbon-free energy to limit global warming. The opening months of 2022 were then dominated by geopolitical uncertainty between Russia, Ukraine, and the West, which resulted in those same world leaders realising that the pace of that move needs to be accelerated.
Since the 1970s, the world’s major economies have been exposed to the risk of oil and gas prices skyrocketing for reasons out of their control and posing a threat to economic activity. With inflationary underlying pressures being what they are, the last thing business leaders and consumers needed was the 45% increase in Natural Gas prices in the last ten days of January. For once, Eco-campaigners and hard-nosed government advisors appear to agree that the time to shift to green energy is now. The pressure to become more environmentally responsible is a clear mandate for companies and investors and makes green energy stocks ideal for 2022 portfolios. Rule number 1 of successful investing is to identify a trend and trade with it, which is why the below list of top green energy stocks for 2022 includes some of the most sought after stocks in the market.
The green energy stocks sector is relatively diverse, and investor preference can steer individuals to one stock and away from another. Some resist the allure of nuclear energy stocks due to the potential environmental damage they can cause when things go wrong. Others see it as the cleanest way to provide base-load power, which will literally keep the lights on if the wind isn’t blowing or the sun isn’t shining.
Some companies benefit from government subsidies that may be tapered back whenever the industry matures, putting a cap on the potential upside. Then there is the question of which green energy stocks might become dominant market leaders and establish barriers to entry high enough to enable them to provide substantial long-term gains for investors.
As with all growth sectors, there will be winners and losers, and this list of green energy stocks for 2022 uses fundamental and technical analysis to identify the ones to buy and when to buy them.
Denmark based Orsted A/S is, by far, the world’s largest offshore wind power developer. The firm is involved in generating 29% of the world’s wind-powered electricity, and that sector is tipped to expand faster than solar or bioenergy.
The impressive market capitalisation of approximately $80bn gives Orsted A/S an advantage in terms of day-to-day business activities but also means it also attracts a lot of attention from institutional investors. Pension funds and other prominent money managers are moving into the green energy sector. They will have a bias towards well-established firms that operate good governance and have a competitive edge in the market. Oersted’s ability to tick the box for institutional investors suggests the share price could find considerable support as the world’s largest fund managers expand their exposure to the sector.
The P/E ratio of 68 is at the aggressive end of the scale, but profit margins are at 13.8%, and the 1.49% current dividend yield highlights how the firm is a going concern rather than a high-risk start-up. Net cash flow over the past six years has topped DKK 1bn.
A portfolio of green energy stocks looking to include some smaller firms offering higher potential growth prospects could do well to include ITM Power. The London listed firm has a market capitalisation of just over £2bn. It is associated with relatively high price volatility, with daily spikes and slumps in the share price often being in the region of 10%. It might not be a stock to go ‘all-in’ on but considering that in 2020 the stock rose by more than 500% in the space of 12 months, even small investments could generate significant returns.
Part of the reason for the dramatic price swings is that ITMs approach to generating green energy is based on hydrogen being the fuel of the future. It uses proton exchange membrane technology and tap water to produce green electricity. However, the jury is out on what extent hydrogen will compete with solar, hydro, bio, and nuclear. There is a sense of ‘buyer-beware’, but if you’re looking for an alternative approach to the move towards green energy, then ITM could be the stock for you.
Capstone Green Energy falls firmly in the penny stock category with a market cap below $50m and a stock price below $5. It’s not covered by the largest number of broker analysts, but of the four studying the firm, three give it a ‘Buy’ rating and one tips it as a ‘Strong Buy’.
Part of the appeal of Capstone Green Energy is the diversity of its operations. The firm’s “suite of clean energy solutions” includes energy conversion technology, storage solutions, and hydrogen power products. Adopting the adage that in a gold-rush, sell shovels, the firm provides support and ancillary services such as energy-as-a-service (EaaS), which involves maintenance, monitoring, and managing green energy operations. Being a small firm, it can be expected to have the agility required to focus on whichever of the divisions looks likely to offer the best long-term prospects.
Shares in SDIC Power Holdings are listed on the London Stock Exchange, but the firm’s operations are based in China and Asia. That means investors can get exposure to the shift towards green energy in international markets.
SDIC’s operations centre on the construction, operation & management of energy projects. Its focus is on power generation and new energy projects, particularly those using cutting edge technology and which factors in environmental concerns.
Uranium Energy Corps operations are primarily US-based, which is important because the US has made a significant commitment to nuclear being the best green energy option going forward. Up to 30% of the global total of nuclear energy is generated in the US, and the uranium UEC sells to the market is largely US sourced. That reduces the risk of its supplies being impacted by problems relating to global politics or logistics.
One potential catalyst for the stock is a shift towards smaller reactors being used. According to the US Office of Nuclear Energy, the new Advanced Small Modular Reactors (SMRs) are a vital part of the Department’s goal to develop safe, clean, and affordable nuclear power options. These smaller-scale reactors will be more in line with those used on nuclear submarines, and the technology used to develop those has been used safely for decades. The manufacturers of the SMRs also have established production lines that can be scaled up relatively easily, which would lead to increased demand for the uranium used to fuel them.
The Uranium Energy Corp stock price shot up by 688% between March 2020 and October 2021, which gives an idea of the potential returns the stock could provide. Those experiencing FOMO will be pleased to note it has since then fallen back to levels which will be tempting those who see nuclear as the best way to provide base-level non-carbon electricity.
Identifying the best green energy stocks to invest in 2022 is the first step in the process of getting exposure to one of the growth sectors of the world’s economy. Nothing can be guaranteed, and price volatility in some stocks can be extreme, but choosing a trusted and well-regulated broker to trade green energy stocks will remove some of the operational risk associated with investing.
Modern platforms offer cost-effective trading and user-friendly functionality to help you be in the best position to enter the market. We’ve selected some of our favourites that tick all of these boxes to help you get started.
Investing in green energy stocks is a great way for investors to make a difference in the direction big businesses take. They need capital to finance new investments, so they will happily move towards generating cleaner energy if that is the direction provided by consumer and investor sentiment.
Digging into the details of each firm’s ESG policy can be time-consuming, but even an off the cuff analysis of the above firms’ points towards investing in them bringing about a greater social good than investing in legacy power companies such as Exxon Mobil, BP, or Shell.
The profile of the typical green energy investor has moved on from someone prioritising social change over financial returns. The groundswell of money moving into the sector is driving up stock prices meaning green energy stocks can now be good for the head and the heart.
The popularity of the green energy stock sector means more brokers are offering more markets in the stocks. Some of the more ‘exotic’ small-cap names can be found at online brokers providing safe and user-friendly trading using a handheld or desktop device.
Brokers with a strong reputation among the investment community you might want to consider using include eToro, DEGIRO, and IG. It takes only minutes to register with one of these, and once set up, it’s possible to filter your search of the stock database using single stock names, the ticker symbols provided above or by sector.
If you are more interested in the convenience and diversity offered by ETF’simit (Exchange Traded Funds), then you might want to check our guide to the best sustainable ETFs for 2022. ETFs allow investors to take a position in a basket of different green energy companies at the click of one button. The fund manager does the legwork of allocating a percentage of your total investment to each of the different companies in the sector. Unlike traditional funds, you can sell out of your position at any time rather than having to wait until month-end.
There are a number of schemes that have been introduced to try to standardise the ways green stocks are measured. This is to avoid ‘greenwashing’, where a firm overstates its eco-credentials in a bid to source investment. Commonly used measures include ESG and CSR policies, but one other approach is to go with gut feeling and ask the question – if this firm grows in size, will the world be a better place?
As green energy stocks become more mainstream, an increasing number of brokers are offering markets in them. It is worth checking the number of markets each one offers and the T&Cs to ensure trading is as cost-effective as possible. Security of funds is paramount, so choosing a well-regulated and trusted broker is as important as the decision of which stock to buy.
There are no guarantees that any stock will go up in value, but increased interest in the green energy sector has been associated with increased price volatility. That means buying green energy stocks is a decision being based on financial as well as ethical motives.
Trading financial products carries a high risk to your capital, particularly when engaging in leveraged transactions such as CFDs. It is important to note that between 74-89% of retail investors lose money when trading CFDs. These products may not be suitable for everyone, and it is crucial that you fully comprehend the risks involved. Prior to making any decisions, carefully assess your financial situation and determine whether you can afford the potential risk of losing your money.
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