For many investors, ESG (environmental, social, and governance) investing is more of an ethical and value-oriented decision than a profitability decision. However, the right environmental stocks can help you do both: invest in an environment-friendly market element and be profitable.
It’s easier now because many environmental stocks are not backed by institutional investors, and financial benefits are reaped from favourable policies in most countries.
Another factor to take into account when you are looking for the right environmental stock to buy is how massive this umbrella is.
From solar panel manufacturers to supply chain tech that finds optimal routes to reduce carbon footprint, a wide range of businesses can be considered environmentally conscious, and they provide investors with a sizable range of investments. Not all these businesses have the same positive environmental impact.
While not exactly niche, Ballard Power Systems (TSX:BLDP) is from an undermined segment of the “green industry.” However, the problem lies not with the company or its tech but with the fuel source it relies upon, which is hydrogen.
Fuel cells can convert hydrogen into electric power and provide a far more efficient zero-emission vehicle (ZEV) compared to EVs because they don’t have batteries. Fuel cells are also used as industrial power solutions (mains or backups).
It’s a promising cleantech, but unfortunately, the hydrogen supply chain has yet to mature. It’s still difficult to produce, transport, and store hydrogen safely, which significantly raises its cost as a fuel, making solutions like Ballard’s fuel cell less desirable compared to alternatives like EVs and power banks. Still, this environmental stock is one breakthrough (in the hydrogen supply chain) away from exploding.
Northland Power (TSX:NPI) hails from the most mature type of environmental stocks — i.e., renewables-based power producers. It’s not a pure-play renewable power company, as about 22.5% of its current operational capacity is still based on natural gas. However, the company is quickly shifting away from fossil fuels and working towards a purely renewable portfolio dominated by off-shore wind assets.
As a stock, Northland is a reliable pick for dividends and a relatively uncertain pick for growth, but that’s not the same as having no capital-appreciation potential. In the right market conditions, the stock can exhibit powerful growth, and in its currently heavily discounted state (55% from its last peak), the chances of growth are quite decent.
Lion Electric (TSX:LEV) is arguably the most beaten-down EV stock in Canada right now. It has lost about 90% of its value at its inception and has struggled to break out of this brutal downward slump. The financials are not the reason because, unlike the stock, they have been going up quite consistently. The stock is also quite attractively valued.
Apart from its discount, valuation, and healthy financials, another reason to consider this environmental stock over others would be its EV products. The company makes school buses and EV trucks, and out of the two, school buses have the most explosive growth potential.
Once North American school districts start converting their fleets, companies like Lion Electric, which are well positioned to deliver, may experience a significant revenue surge.
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All three of these environmental stocks are heavily discounted. Lion Electric and Ballard have fallen so hard that they have been knocked down to small-cap stocks. However, their fundamental strengths are still significant enough reasons to consider these stocks before they go bullish, thanks to favourable circumstances propelling them upwards.