Renewable energy stocks are on the right side of a secular shift, and many of the solid green energy power plays on the TSX are more than worth picking up on recent weakness. Indeed, the broader market sagged lower to end last week, with the U.S. Federal Reserve sending jitters down investors’ spines, confirming that a double dose of rate hikes could be in the cards in as little as a few weeks.
Undoubtedly, some have opened up to a triple hike, or a 75-bps rate hike, at the next meeting. Such a quicker-than-expected move may yet to have been factored into markets. And it’s this surprise that’s not only taken a hit out of the growth trade but the value-conscious corners of the market as well.
Market volatility: Rate hikes on the horizon
Nobody knows how quickly the Fed or Bank of Canada (BoC) will act. They need to act, though, or it could run the risk of letting inflation run even hotter. If inflation hits double digits, the balancing act for central banks could become nearly impossible, and a recession may be the only solution to propel the economy out of the funk.
Now that investors are pondering a 50-bps or even 75-bps hike by the U.S. Fed (that’s been a boon on the greenback of late), here in Canada, we’ve seen inflation flirt with 7%. Arguably, the BoC ought to be more aggressive come its next meeting, perhaps with a full-point (1%, or 100 bps) hike. Indeed, the sooner central banks rip the band-aid off, the sooner the markets and economy can heal from the horrific onslaught of inflation.
Stagflation is a growing possibility: Renewable energy stocks could be the place to be amid market jitters
The real risk, I believe, is if the BoC or Fed don’t act quickly. Arguably, they’re already running behind schedule, given inflation has continued to climb higher month after month. Should these single-dose hikes not be enough to dent inflation, the risk of stagflation (high inflation and low economic growth) may be an increasing possibility.
In such a scenario, it’s tough to make money as an investor, unless you know how to pick your spots. The renewable energy stocks, I believe, are built to do well in such an environment, where inflation remains persistent as economic growth begins to cool off.
If anything, the recent rise in energy prices has acted as an accelerant for renewable energy. Indeed, the Ukraine-Russia crisis is a black swan event that worsened inflation. Though clean energy supply can’t catch up overnight, I think the tailwinds could power through a recessionary or stagflationary environment.
Canadian renewable energy stocks to power your TFSA!
Brookfield Renewable Partners (TSX: BEP.UN)(NYSE: BEP) and Northland Power are two of my favourite ways to play the space.
Brookfield remains my preferred play after suffering a steep 12% correction from peak to trough. With a 3.52% dividend yield, you’re getting an excellent income jolt to buoy your portfolio amid inflation. Though you can do better with some of the other green energy producers out there, it’s tough to match the calibre of Brookfield’s management.
They’re the best in their breed, and I think they’re more than worth paying up for. In terms of capital gains potential, Brookfield Renewables seems tough to beat. The company’s green energy facilities generate around 21 gigawatts, with a massive project pipeline that could drive this number much higher over the next 10 years. Indeed, Brookfield is a powerhouse in solar, and I think the name should be considered any time it corrects, as it did in recent weeks.
Bottom line
Though Northland has a solid 3% dividend yield and grand projects of its own, I’m a bigger fan of Brookfield for its managers, the higher yield, and its enviable portfolio of projects.
