In this article, we discuss the 5 best climate change stocks to buy according to hedge funds. If you want to read our discussion on the recent climate change developments, go directly to the 11 Best Climate Change Stocks To Buy According To Hedge Funds.
5. Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders: 39
Shell plc (NYSE:SHEL) is a London-based integrated energy company that is making a rapid transition towards renewable energy. This is evident by the fact that the company has appointed the current head of the renewable division Wael Sawan as the new CEO, effective from January 1 next year. He will take over from current CEO Ben van Beurden.
Shell plc (NYSE:SHEL) is on an ambitious goal of achieving 500,000 EV charging ports globally by 2025. The company is already operating 90,000 charging ports across 46,000 locations globally. Shell plc (NYSE:SHEL) is targeting the biggest EV market in China through its partnership with NIO Inc. (NYSE:NIO) for EV charging and battery swapping facilities at its stations. The growth of the global EV industry is expected to compound by 24.3% annually, from $246.7 billion in 2020 to $1.31 trillion by 2028.
Here’s what Third Point Management said about Shell plc (NYSE:SHEL) in its Q1 2022 investor letter:
“We have continued to add to our position in Shell, as it trades at the same deeply discounted multiple today that it did last year due to a move up in commodity prices. We are engaged in discussions with management, board members, and other shareholders, as well as informal talks with financial advisors. We have discussed various alternatives with the aim of both increasing shareholder value and allowing Shell to effectively manage the energy transition. We have reiterated our view that Shell’s portfolio of disparate businesses ranging from deep water oil to wind farms to gas stations to chemical plants is confusing and unmanageable. Most investors we have discussed this with agree that the company would be more successful over the long term with a different corporate structure. Discussions among the parties have been constructive and will be ongoing since stakeholders clearly see these corporate changes as instrumental, particularly if Shell wishes to become a leader in the energy transition rather than be left behind as a tarnished legacy brand.
Beyond our discussions around corporate structure, there have been two important developments since our last update. First, Shell announced a plan to redomicile its headquarters to the UK and create a single shareholder class. This move allows greater flexibility to modify its portfolio (either through asset sales or spin-offs) and allows for a more efficient return of capital, specifically via share repurchases. Second, fundamental and geopolitical events have highlighted the strategic importance of reliable energy supplies, especially in Europe. Shell’s LNG business, the largest in the world outside of Qatar, will play a critical role in ensuring energy security for Europe. In our view, the value of this business has increased dramatically since our original investment.
While Shell continues to trade at a large discount to its intrinsic value, with proper management we believe the company can simultaneously deliver shareholder returns, reliable energy and decarbonization of the global economy. We look forward to continued engagement with management and other shareholders and to more strategic clarity from the Company.”
At the end of Q2 2022, Shell plc (NYSE:SHEL) was held by 39 hedge funds.
4. SolarEdge Technologies, Inc. (NASDAQ:SEDG)
Number of Hedge Fund Holders: 40
SolarEdge Technologies, Inc. (NASDAQ:SEDG) is a Herzliya, Israel-based developer of solar inverters that play an integral part in how power is generated and managed in the solar PV system.
The inverter ensures that maximum power is generated at the lowest possible cost to enhance the return on investment (ROI). Mark Strouse at JPMorgan increased the price target on SolarEdge Technologies, Inc. (NASDAQ:SEDG) from $373 to $419 and reiterated an Overweight rating in an update issued on August 8. The target price reflects a potential upside of over 45% from the closing price as of September 23. The analyst increased the target price by over 12% to incorporate the positive impact of the Inflation Reduction Act (IRA). SolarEdge Technologies, Inc. (NASDAQ:SEDG) stock price has already achieved an eightfold increase since 2017.
ClearBridge Investments discussed its outlook on SolarEdge Technologies, Inc. (NASDAQ:SEDG) in its Q1 2022 investor letter. Here’s what the firm said:
“SolarEdge Technologies (NASDAQ:SEDG) is a key solar holding that should be able to take advantage of greater incentives for solar installations in many geographies. The company was also a strong contributor for the quarter, overcoming pressures of a higher discount rate on their strong projected future earnings, raw material inflation and supply chain challenges as their long-term value was reaffirmed.”
3. Enphase Energy, Inc. (NASDAQ:ENPH)
Number of Hedge Fund Holders: 53
Enphase Energy, Inc. (NASDAQ:ENPH) is a Fremont, California-based company that provides residential and commercial solar and storage solutions.
Enphase Energy, Inc. (NASDAQ:ENPH) stock price has rallied by over 57% in the last three months. In contrast, the S&P 500 and the tech-heavy NASDAQ Composite Index have only observed a rise of around 1% during the same period. The company is acquiring numerous companies in the US to expand its footprint for its integrated services. Enphase Energy, Inc. (NASDAQ:ENPH) reported stellar Q2 2022 results as it reported three key performance indicators (KPIs) that were above expectations. Enphase Energy, Inc.’s (NASDAQ:ENPH) solid fundamentals make it one of the best climate change stocks to buy, according to hedge funds.
Here’s what ClearBridge Investments said about Enphase Energy, Inc. (NASDAQ:ENPH) in its Q1 2022 investor letter:
“Enphase Energy (NASDAQ:ENPH) is a key solar holding that should be able to take advantage of greater incentives for solar installations in many geographies. The company was also a strong contributor for the quarter, overcoming pressures of a higher discount rate on their strong projected future earnings, raw material inflation, and supply chain challenges as their long-term value was reaffirmed.”
2. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 59
NextEra Energy, Inc. (NYSE:NEE) is a Juno Beach, Florida-based electric utility company with a generation capacity of 58 GW and a headcount of 14,900 employees. The company already has 16,000 megawatts (MW) of zero-emission power generation capacity through wind energy.
NextEra Energy, Inc. (NYSE:NEE) has a significant backlog of renewable energy projects in the pipeline that have a favorable recovery on investments due to support provided by regulatory recovery mechanisms in place. One of its subsidiaries, in the form of FPL, is the biggest solar energy generator in Florida, with an output of 2,700 MW through its 40 facilities. Given the company’s profile and financial outlook, James Thalacker from BMO Capital increased the price target on NextEra Energy, Inc. (NYSE:NEE) stock from $92 to $100 and maintained an Outperform rating on September 16. The analyst believes that NextEra Energy, Inc. (NYSE:NEE) stock should trade at a premium valuation based on its fundamentals and growth drivers.
NextEra Energy, Inc. (NYSE:NEE) is considered one of the best climate change stocks currently, with 59 hedge funds having a stake in the company as of Q2 2022.
1. Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 72
Tesla, Inc. (NASDAQ:TSLA) is a Texas-based EV company led by billionaire Elon Musk.
Tesla, Inc. (NASDAQ:TSLA) is a leading EV maker that also manufactures batteries generating renewable solar energy. The company manufactures solar panels for residential and commercial customers. Tesla, Inc. (NASDAQ:TSLA) is making an aggressive foray into the Chinese EV segment as it is working on ramping up production from its Shanghai gigafactory facility.
Adam Jonas at Morgan Stanley thinks that Tesla, Inc. (NASDAQ:TSLA) will undergo a “peak China” dependency stage in the next year. However, the supply chain of the EU and NAFTA countries will ramp up as it starts to fall in compliance with the IRA. The analyst has given Tesla, Inc. (NASDAQ:TSLA) stock an Overweight rating and a target price of $383 in a research note issued on September 20.
Here’s what Baron Funds said about Tesla, Inc. (NASDAQ:TSLA) in its Q2 2022 investor letter:
“In 2014, before we began to invest in Tesla (NASDAQ:TSLA), I called Roger to ask whether he thought Elon Musk’s electric car business would succeed. I did not believe that Roger, an owner of dealerships that sell cars powered by internal combustion engines (ICE) would likely have a favorable opinion of Tesla’s prospects. That was principally for two reasons:
- First, automobile manufacturing and distribution is unusually complicated, capital intensive, and highly regulated, which makes profitability problematic;
- second, cars with ICE motors require extensive annual maintenance, and dealer services revenues, not profits from automobile sales, are the most important contributor to profits of perpetual licensed ICE car dealerships.
Penske Automotive Group is principally an ICE car dealer. Since electric cars are powered by batteries and need little service, franchised dealerships are incented to sell ICE not EV automobiles. Further, Roger had been a long-term director of General Motors. General Motors’ ICE automobile business would be disrupted if Tesla were successful.
Regardless, I was right to have spoken with Roger. That was since he outlined numerous issues we needed to consider, study, and question before we determined whether we believed Tesla could be a successful business…before we ultimately chose whether to invest in that company.
When we completed our initial due diligence on Tesla, which diligence has been ongoing since 2014, we decided to invest $360 million in Tesla over the next two years. I then called Roger and outlined why I thought we could earn 20 times our capital over the next 10 years. Roger was so certain I was wrong that he offered to bet me $1 million that Tesla would fail. “Roger, I can’t bet you a million dollars. First, if you are right, I couldn’t afford to pay you. Second, if I’m right, you’re my friend, and I couldn’t take your money.” We settled on a dinner bet…”
Of the 895 hedge funds in Insider Monkey’s database, Tesla, Inc. (NASDAQ:TSLA) was held by 72 elite funds as of Q2 2022.
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