Profit From Planet-Friendly Companies

Sustainable stocks are going gangbusters. We found seven with an environmental focus to buy now.

- ADAM SHELL

Green stocks are white hot. Stocks poised to profit from an expected multi-decade transition to clean energy, renewable power, electric-powered transportation and zero pollution emissions have skyrocketed in popularity—and in price. That means environmentally minded investors who want to grow their wealth by investing in the planet should tread carefully. // Many green stocks are up two-, three-, four-fold and more over the past year. Shares of electric car maker Tesla have risen 480%, for example, and the stock of solar-energy company Enphase Energy has surged 423%. From the start of 2020 through late January, a basket of U.S. renewable-energy stocks has outgained the broad S&P 500 index by more than 200 percentage points, with the median price-earnings ratio of the renewable names, based on projected profits, 40% higher than the S&P 500’s, according to Goldman Sachs. Analysts at investment bank Raymond James call this a “breakout moment” for green investing but advise investors “not to throw caution to the wind.” // That means brace for a pullback in the short term, but don’t let passing clouds eclipse an overall bullish outlook. “A shakeout is inevitable,” says Chris Marangi, co-chief investment officer of value investing at Gabelli Funds and comanager of its new Love Our Planet & People exchange-traded fund. Interest in stocks with an environmental focus, he says, has reached a level reminiscent of past manias. Given the lofty P/Es, a price decline of “30%, 40% or even 50%” is possible for green stocks that have doubled, tripled or quadrupled in value, says Lucas White, manager of GMO Climate Change Fund.