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The best climate change stocks to buy are suddenly looking even better.
Last week's dire United Nations report dramatically ramped up the sense of urgency to fight climate change. The report, authored by the UN Intergovernmental Panel on Climate Change (IPCC), warned that time is running out to avoid the worst effects of climate change.
Even full implementation of the 2015 Paris Agreement won't be enough to avoid catastrophic damage to the environment, it said.
This makes climate change stocks - companies with technology and services aimed at mitigating the effects of climate change - an even stronger buy as money pours into their solutions.
The IPCC report warns the world will have to reduce carbon emissions by 40 to 50% by 2030 - just 12 years away - to avoid economic damages from lost productivity, health issues, and weather pattern changes that will run into the hundreds of billions of dollars.
The short timetable will encourage more spending in the short to medium term on low carbon technologies, boosting the profits of the companies that provide them. It's a shift that will benefit both the businesses and the environment.
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"[Climate change] has gone from being an environmental problem that we have to deal with in order to minimize damage, to a driver of growth, innovation, and opportunity," Mark Kenber, the Chief Executive of UK-based Mongoose Energy and a 20-year veteran of the climate change economy, told Natural Capital Partners last November.
And this opportunity will be worth trillions of dollars...
This Market Could Grow to $1 Trillion per Year
From an investing standpoint, climate change represents a broad range of opportunities. It includes everything from renewable energy stocks to water stocks to companies that specialize in energy efficiency.
Estimates of the spending on climate change technology vary, but tend to run into the trillions of dollars.
In 2015, the Low Carbon Technology Partnerships initiative estimated that a serious, organized attempt to combat climate change would require the investment of between $5 trillion and $10 trillion over the next 12 years.
The International Energy Agency (IEA) has estimated the world will collectively need to spend an average of $1 trillion per year until 2050 on carbon emission reduction. For the past several years, investment has hovered around $400 billion - an increased sense of urgency will push spending up by hundreds of billions a year.
While governments and businesses have been reluctant to increase spending, they'll start to change their tune as it becomes apparent that investing in these solutions will be the cheaper alternative.
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The IPCC report estimates the economic damage of the earth warming by 1.5 degrees Celsius by the end of the century at $54 trillion. If temperatures rise by 2 degrees over that span, the IPCC estimates the damages at $69 trillion.
Now let's take a look at the kinds of companies most likely to benefit from rising climate change spending...
Stocks to Buy as the World Invests in Climate Change
Clearly the first and largest category is renewable energy stocks, particularly solar stocks.
Here we have companies such as First Solar Inc. (NASDAQ: FSLR), SolarEdge Technologies Inc. (NASDAQ: SEDG), Enphase Energy Inc. (NASDAQ: ENPH), and Vivint Solar Inc. (NYSE: VSLR).
After a strong year in 2017, the solar sector has struggled this year in the wake of tariffs on imported panels imposed by U.S. President Donald Trump. But that means many solar stocks are bargains; over the long term, demand resulting from the need to transition from fossil fuels will drive prices much higher.
A less obvious category is energy efficiency stocks. These companies develop technology that reduces overall energy use. This in turn reduces carbon emissions from fossil fuels, while making renewable energy stretch further.
Energy efficiency stocks include Johnson Controls International Plc. (NYSE: JCI), Ingersoll-Rand Plc. (NYSE: IR), Honeywell International Inc. (NYSE: HON), and Trimble Inc. (NASDAQ: TRMB).
But while all of these stocks stand to prosper from an increasing global focus on climate change, we like two better than any I've mentioned so far. That's because both of these companies have earned the highest possible Money Morning Stock VQScore™.
That tells us they're the best climate change stocks to buy now...
Two Top Climate Change Stocks to Buy
About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.
Do you think the ETF MJ is a good take not only for Canada but the United States as well ? I’ve read that a lot of the stocks in the EFT operate in bothe countries.
TY John
John,
Thanks for reading Money Morning. According to ETF.com, the MJ ETF has limited exposure to the US due to the federal ban on marijuana. I'm not so sure any of the Canadian companies are doing business in the US. That will only change when federal laws change. But the ETF does own a few medical marijuana stocks based in the US, such as Insys Therapeutics and Cara Therapeutics. It also owns UK-based GW Pharamceuticals, which is working toward getting a CBD-based drug approved in the US. MJ is not a bad choice for broad exposure to the growing marijuana market and is bound to enjoy nice gains over the next couple of years.
-Dave Zeiler
Associate Editor, Money Morning