When Canadian investors think about Enbridge (TSX:ENB)(NYSE:ENB) stock, they do not normally think about its renewable energy portfolio. This energy infrastructure firm may best be known for transporting 2.2 million barrels of oil per day. Enbridge also distributes natural gas through Enbridge Gas Distribution and Union Gas.
Nonetheless, this energy infrastructure firm has invested in 21 wind farms, four solar energy plants, and five waste heat recovery facilities. More recently, Enbridge announced a partnership with EDF Renewables and WPD to construct an offshore wind farm in Fécamp, France:
EDF Renewables, Enbridge and wpd start construction of the Fécamp Offshore Wind Farm https://t.co/L1jdGOB1dA
— Stock Market News (@Stock_Market_Pr) June 2, 2020
The renewable energy portfolio at Enbridge can generate 1,991 MW of energy to power almost 900,000 homes. Since Enbridge is taking the initiative to innovate through renewable energy technology, this energy stock may be a good buy in 2020.
Enbridge underperforms TSX index
So far, Enbridge has failed to impress investors throughout 2020. The stock has lost 12.86% of its market value year to date. By comparison, the S&P/TSX Composite Index level percentage change is only -7.06%.
Normally, investors might prefer stocks with a demonstrable history of outperforming the market average percentage change. Especially during a bear market, savers interested in stashing cash in value or income stocks typically want to see stronger market performance than the index.
Further, Enbridge hasn’t experienced strong price performance during bull markets either. Over the last five years, Enbridge has lost 23.91% of its market value. Meanwhile, the S&P/TSX Composite Index level percentage change is a positive 5.58%.
The lack of long-term price stability makes Enbridge a risky purchase for any Canadian saver or investor. The 7.2% dividend yield at the current share price of $44.99 is little compensation for the price and liquidity risk.
Will luck turn around for Enbridge stock?
Hopefully, Enbridge shareholders can expect to see the COVID-19 stock market lift the price of shares in Enbridge stock. If the company continues to invest in renewable energy, then investors may start seeing greater profit potential from this asset.
In other words, Enbridge needs to decrease its reliance on oil for revenue and build its portfolio of alternative energy sources. In this way, it can rebrand itself as a company with higher growth prospects.
Oil and natural gas are quickly being replaced with cleaner, more sustainable energy sources like wind and solar power. If the company wants to keep pace in the energy market over the next decade, it will need to replace oil and natural gas projects with more innovative technology.
Should you invest in Enbridge stock?
Investing in Enbridge stock today is a risky choice. We don’t know how efficiently the company will produce clean energy. Moreover, it is still unclear how quickly the company can build its renewable resource portfolio.
On the bullish side, Enbridge stock was showed some strong upward momentum during the second half of 2019. Before the March downturn, shareholders traded the stock for over $56 per share. The energy stock may not have much downside risk from here.
Whether you want to take a risk on Enbridge stock and its budding renewable energy portfolio is ultimately your decision. If you do purchase stock in this company, consider selling an out-of-the-money call option to hedge your position.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Debra Ray has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Enbridge.