Increasing concern over global warming has spurred a new style of environmentally responsible investing.The Green Century mutual fund family is a leader in the space, so I took a look at the company’s highly rated Balanced Fund for some stock ideas. I discovered that sometimes, “green” isn’t found in obvious places.
Investing in Green
A recent article on Bloomberg.com highlighting environmentally friendly investing led to me to review Green Century Balanced Fund’s portfolio. The fund earned four stars from Morningstar, so it’s a decent performer. Its portfolio as of the most recent semi-annual report was filled with names I expected. However a few stood out — because I didn’t think of them as environmentally friendly.
After digging a little deeper into each company’s story, I realized that investors eager to help the environment need to look beyond the obvious. Sometimes supporting a good player in a “bad” industry is just as important as buying obviously earth-friendly stocks.
Trains?
Canadian Pacific Railway Limited (USA) (NYSE:CP) was the first name to jump out at me. At first glance, a railway is anything but environmentally friendly. Taking a step back, however, Canadian Pacific Railway Limited (USA) (NYSE:CP) has been going through some big changes.
For example, it has been reworking its track network and updating its locomotive and train car fleet, among other things. Some results from this effort include cutting “operating plan train miles by 39,000 per week, a 7% improvement” according to the company; culling its locomotive fleet by some 195 engines; and shrinking its train car fleet by thousands of cars. And, as old engines and cars are pulled off, newer, more efficient ones are brought on.
As a result, Canadian Pacific Railway Limited (USA) (NYSE:CP) transports products in a more efficient and, thus, environmentally friendly manner — in an industry that’s already more efficient than using gasoline-powered trucks.
Aside from a dip in 2009, the top line has been growing steadily for a decade. The bottom line has been more volatile, but fuel is an important and highly variable cost, so that’s understandable. The dividend, meanwhile, has been on an upward climb since 2009. After a heady run, however, Canadian Pacific Railway Limited (USA) (NYSE:CP)’s shares seem most appropriate for momentum investors.
Planes?
United Parcel Service, Inc. (NYSE:UPS) operates a fleet of more than 500 airplanes and 100,000 trucks. That, too, hardly sounds environmentally friendly. However, just like Canadian Pacific Railway Limited (USA) (NYSE:CP), United Parcel Service, Inc. (NYSE:UPS) provides a service the the world can’t do without, making it a necessary evil to some extent. But how evil?
At the end of 2012, the company had more than 2,600 alternative energy vehicles. Moreover, it has been at the leading edge of using technology to optimize delivery routes. An example of the results of this effort include saving “almost 100 million minutes of engine-idling time and more than 650,000 gallons of fuel” in a single year. Now that’s starting to sound environmentally friendly.
These initiatives, however, aren’t just nice for the environment. They also help explain the company’s industry-leading operating margin, which United Parcel Service, Inc. (NYSE:UPS) claims is nearly twice that of its closest competitor. While sales dipped during the 2007 to 2009 recession, they are now above their pre-recession high. Earnings have been more volatile, however, because of pension expenses, contractual pay increases, and fuel costs.
That said, the dividend has been headed on a generally higher path for over a decade. After a nice run, though, the shares are, once again, most appropriate for momentum investors.
And Automobiles?
Toyota Motor Corporation (ADR) (NYSE:TM) makes cars and trucks — yet another not-so-environmentally-friendly industry. However, one of the Japanese automaker’s top-selling brands is the Prius line of hybrid cars. The Prius nameplate was the first truly mass-market, environmentally friendly vehicle. That puts the company at the head of the car class for being green.
After a rough patch in which the company’s quality was sorely questioned on top of a deep world-wide recession, Toyota Motor Corporation (ADR) (NYSE:TM) appears to be getting back into the game. While still well below their 2008 peak, revenues are solidifying after hitting a low in the middle of 2011. While earnings dipped between 2011 and 2012, they, too, appear to at least be headed in the right direction again, after the company dipped into the red during the recession.
Like the other two companies here, Toyota Motor Corporation (ADR) (NYSE:TM) shares have had a big run over the last year or so, so they are most appropriate for — you guessed it — green-minded momentum investors. That said, if depressed car demand continues to pick up, there could be plenty of upside here.
Hidden Green
These three picks highlight some of the most environmentally friendly companies providing “necessary evil” products and services. Big price advances, though, make them a bit too pricey for value-minded investors. Toyota Motor Corporation (ADR) (NYSE:TM)’s is most likely to surprise to the upside, however, should car sales continue to climb.
The article Environmental Investing: Part 2 originally appeared on Fool.com.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends United Parcel Service. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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