Electrification is the secular trend everyone’s talking about. Whether it’s electric vehicles (EVs) or a myriad of other sectors benefiting from global initiatives to cut greenhouse gas emissions, investors have certainly recognized the world is about to change. Investing is about getting ahead of the curve, and doing so requires foresight.
Let me explain.
Electricity can be dirty
Electric vehicles are going to require power — a lot of power. How this electricity is produced is going to become a key focal point of governments, as leaders look to tackle this.
One of the topics many EV owners or investors don’t want to think about is the fact that electricity is still pretty dirty. Yes, electric vehicles are still better for the environment overall. However, a high percentage of electric power is still generated via coal-burning or natural gas-run power plants.
Renewable energy is the solution to the bigger problem of eliminating carbon emissions. To move from where we are today to where we need to be in terms of emissions, renewable energy is the only solution.
Here’s where Algonquin comes in.
Algonquin: Not only a utilities business
Many investors are already aware of Algonquin’s regulated utilities business. Indeed, this makes up the majority of the company’s revenue and powers (had to do it) its impressive earnings.
However, investors may be less aware of the company’s impressive renewable energy portfolio. Indeed, this is one of the most enticing aspects of Algonquin I don’t think is fully recognized by the market today.
Around one-third of the company’s revenue is derived from its investments in renewable energy. The company has been aggressively building its portfolio of renewable energy assets in recent years, and the market has certainly validated these moves of late.
However, given the long-term importance renewable energy is likely to play in sustaining the electrification trend, I think Algonquin is likely undervalued at these levels.
Algonquin provides investors with the perfect mix of safety, defensiveness, income, and growth. Indeed, the company’s renewable energy segment is one which deserves more attention from investors right now.
Accordingly, those seeking bond-like income in the utilities sector can’t do much better than Algonquin. This is a long-term investor’s dream stock, and I think will continue to outperform. This stock is still down more than 10% from its peak last month. Accordingly, investors looking to get in have a much more attractive entry point here.
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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 Chris MacDonald has no position in any of the stocks mentioned.