We recently published a list of 10 Best Environmental Stocks to Buy. In this article, we are going to take a look at where Tesla, Inc. (NASDAQ:TSLA) 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).
Tesla, Inc. (NASDAQ:TSLA)
Number of Hedge Fund Holders: 99
As a global leader in the electric vehicles (EV) market, Tesla, Inc. (NASDAQ:TSLA) is known to revolutionize the sustainable transport sector, through constant innovation in clean energy transport offerings. The company produces electric cars and energy storage solutions that are the need of the hour to overhaul the currently fuel dependent transport industry. In 2024, Tesla’s Model Y achieved a significant milestone by becoming the best-selling car globally, positioning it as a leader in eco-friendly vehicles. The company unveiled the new Model 3 Performance, which leverages the company’s latest manufacturing and engineering capabilities to provide a high-performance yet sustainable daily driving experience.
The Tesla, Inc. (NASDAQ:TSLA) stock has constantly been on watchlists and has shown a 100% increase in 1-year value. Though the recent 60% revenue plummets in Germany are causing concern, the announcements for the launch of Robotaxi’s or unsupervised full self-driving (FSD) as a paid service in the US market will likely cause some interesting variations in the EV market. CEO Elon Musk’s Q4 Earnings call has indicated an exciting 2026 and 2027 for the company. As the company is expanding beyond the EV market and tapping into AI and robotics, the market expansion still keeps it on the list watch, despite recent stock slowdowns. 2024 revenue has met the $97 billion mark as expected.
Looking ahead, analysts predict that Tesla, Inc. (NASDAQ:TSLA)’s performance in the autonomous vehicle sector, particularly its robotaxi initiative, will drive the company’s stock in 2025. Even with the ongoing challenges in its core automotive business, involvement in AI presents significant opportunities for growth
Tesla, Inc. (NASDAQ:TSLA)’s energetic strategy and constant focus on innovations make it one of the most sought-after environment segment companies, and the best environmental stock to buy.
Overall, TSLA ranks 1st on our list of best environmental stocks to buy. While we acknowledge the potential for TSLA 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 TSLA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
