We recently published a list of 10 Best Environmental Stocks to Buy. In this article, we are going to take a look at where Eaton Corporation plc (NYSE:ETN) stands against other best environmental stocks to buy.

Environmental stocks have gained attention in recent times with more investors being interested in stock stability and increased regulatory focus for climate change issues and the financial markets. They are often favored for their potential to tap into environmental opportunities, as consumers, regulators, and companies seeking to meet Net-Zero targets increasingly look for new and innovative solutions to combat climate change and overcome environmental challenges.

Fund managers looking to meet their transition strategies are heavily shifting towards low-carbon solutions and projects. Potential growth projects include renewable energy projects,  nuclear energy restarts and renewals, solar, battery storage projects, carbon capture and storage, and new natural gas capacity among others. The US SIF Trends Report 2024/2025 identified that 73% of surveyed investors expect the sustainable investment market to be on the rise in the next 2 years, driven by client demand, regulatory requirements, and advances in data analytics. The fund landscape is fast changing with transition investing becoming the major focus for investors, even with the potential uncertainties due to the Trump administration’s proposal to revoke EV tax credits, driven by new technologies in the sector and decreases in costs. The outlook for renewable energy is still positive. A PwC report finds that ESG-focused institutional investment will rise 84% to $33.9 trillion in 2026, comprising over 21.5% of assets under management. Environmental stocks have experienced fluctuating performance, influenced by market dynamics and investor sentiment in recent years. In 2022, U.S. ESG funds net inflows decreased significantly from $69.2 billion in 2021 to $3.1 billion, the lowest level in seven years. 2023 followed a similar trend, with ESG funds in the U.S. experiencing net outflows exceeding $5 billion in the final quarter, the most substantial quarterly withdrawal in over five years. Poor investment performance and increased political scrutiny were driving forces for the slowdown. Even with the market challenges and fluctuations, certain companies within the environmental sector have demonstrated strong resilience. In summary, while investor opinions of stronger environmental stocks performance over traditional stocks remain debatable, select firms continue to stand resilient in the ever-evolving ESG landscape.

What Are Environmental Stocks?

Several funds are focused on industry stocks for companies that provide products and services in climate solutions or green investments that work towards reducing harmful pollutants or sustainable resource use. This can either be in the area of alternative technologies, e.g. solar/wind power, or other areas of environmental solutions such as waste management. As industries that rely heavily on fossil fuels and create pollution are facing higher costs, fines, and regulatory scrutiny, the market opportunity for alternatives is on the rise. Several mutual funds and index funds are looking at these alternative investments that provide a strong potential for future returns.

The Green Economy Index Family tracks the sectors focusing on the enhancement of economic development based on the reduction of carbon usage. These sectors include energy efficiency, bio/clean fuels, and pollution mitigation. Environmental stocks form a key part of sustainable investing, and therefore, by prioritizing environmental concerns, investors can contribute to long-term sustainability and reduce the negative costs of climate change.

However, with growing fund manager attention and the potential of gains through policy benefits, the risk of greenwashing and misleading claims by companies is also becoming a significant challenge. This has led financial watchdogs to increase scrutiny and seller responsibility in several geographies that specify accurate ‘labels’ for levels of environmental and green funds. With the US Securities and Exchange Commission (SEC) ESG Disclosure Rule, stricter and more enforceable ESG regulations and disclosure requirements are on the horizon for the US markets.

Our Methodology 

To come up with the best environmental stocks to buy list, we have considered all US environmental stocks that feature on different indexes and have upscale potential.  To identify stocks from the environmental sector we have used the FTSE Green Revenues Classification System, to come up with the sectors that are working in the provision of green solutions, these included companies involved in alternative energy generation, water and wastewater treatments, transport solutions, and pollution control. We then used Insider Monkey’s Hedge Fund Q3 2024 database to rank 10 stocks based on the number of hedge fund holders. Our list is sorted in ascending order according to hedge fund sentiment.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

Eaton Corporation plc (NYSE:ETN)

Number of Hedge Fund Holders: 90

Eaton Corporation plc (NYSE:ETN) is a power-management company with energy-efficient product offerings. It provides power management solutions to accelerate energy transition through electrification and digitalization.

Eaton Corporation plc (NYSE:ETN)’s strong focus on innovation has led it to be considered one of the most admired companies by FORTUNE. This shows in its recent shift to focus on the AI market, with its new product SmartRack Modular Data Center, a cutting-edge AI deployment modular solution that rapidly configures and deploys in various edge locations. The offering is set to revolutionize data infrastructure management. Eaton’s commitment to environmental sustainability is displayed through its ambitious 2030 targets. The company sets a target to reduce carbon emissions from its operations by 50%, achieve carbon-neutral operations, and certify all manufacturing sites as zero waste to landfill. As of 2024, the company has already reduced greenhouse gas emissions by 31% since 2018 and certified 79% of its manufacturing sites as zero waste to landfill, progressing robustly toward its 2030 goals. Further cementing its sustainability objectives, Eaton Corporation plc (NYSE:ETN) is undertaking clean energy projects across its global operations. New solar deployments are being set up to power innovation and manufacturing, significantly reducing the company’s carbon footprint and energy costs. These initiatives not only further the company’s environmental commitments but also solidify its position as a major player in the clean energy sector.

Eaton Corporation plc (NYSE:ETN) registered a record quarterly adjusted earnings per share of $2.84, a 15% rise over 2023. The 2024 revenue stands at $24.9 billion, with $6 billion being recorded in Q4, a year-on-year increase of 4.6%. Record segment margins were at 24.3%, 70 basis points over Q3 2023.

Overall, Eaton Corporation plc (NYSE:ETN)’s recent developments underscore its robust financial performance and strong commitment to environmental sustainability. The company is underway to meet its ambitious goals and contribute significantly to a sustainable energy landscape through strategic initiatives and innovative solutions.

Overall, ETN ranks 2nd on our list of best environmental stocks to buy. While we acknowledge the potential for ETN as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ETN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap

Disclosure: None. This article is originally published at Insider Monkey.