The push to electric vehicles and alternative energy has put green stocks squarely in Wall Street’s focus. Here are six ways to play it.
Between the current political environment, increasing awareness and understanding of the changing climate, and the emergence of nascent technologies, investing in green stocks has, understandably, gained a lot of attention. But it also raises a valid question: what, exactly, are green stocks?
Most investors would be quick to volunteer alternative energy producers and electric vehicle manufacturers like Tesla (TSLA), but those investors are only seeing the tip of the iceberg. Did you know, for instance, that General Motors (GM), the stodgy, traditional automaker, is poised to release 30 new electric vehicles in the next five years?
The truth is, there are a large number of companies poised to benefit from the acceleration of clean energy and transportation growth that many investors are overlooking. So, with that in mind, here are four sectors, some obvious and some less so, to invest in to gain exposure to green stocks.
Green Stocks and ETFs in Alternative Energy
These green stocks, as mentioned above, are normally the first to come to mind for investors. In all likelihood, that’s simply because it’s the easiest green transition to visualize. You used to generate power by burning coal, now you generate power with wind turbines or solar. NextEra Energy (NEE) is probably the best known to most investors given its size and favorable dividend yield. However, you can easily gain exposure to a broad swath of alternative energy producers via clean energy ETFs and mutual funds. The iShares Global Clean Energy ETF (ICLN), for instance, offers exposure to 30 companies across the globe that are in the green energy space. ICLN is just one of many clean energy funds, and investors looking for that exposure would be well-suited to investigate all their options.
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Green ETFs in the EV Marketplace
Aside from the aforementioned Tesla and GM, there are a large number of vehicle manufacturers jockeying for position in the emerging electric vehicle (EV) space. The major automobile manufacturers are all either currently offering fully electric or hybrid vehicles or are in development. Plus, there are a wide range of start-ups and companies still on the ground floor working on autonomous delivery vehicles, electric trucks, and self-driving technology. ETFs like the iShares Self-Driving EV & Tech ETF (IDRV) or the Global X Autonomous & Electric Vehicles ETF (DRIV) are good places for investors to begin taking a position in this space.
It’s important to remember, however, that vehicle manufacturers aren’t the only green stocks in EVs; component manufacturers, semiconductor manufacturers, and software development companies are all integral to the development of electric vehicles.
A Green ETF in Battery Tech
All those self-driving cars are going nowhere fast without reliable power. That’s where batteries come in. Battery technology has been the biggest limiting factor in the proliferation of not only electric vehicles but also a wide range of alternative energies (solar doesn’t produce energy when the sun is down, and you have to get power from somewhere). As of right now, lithium-ion batteries are the best we can get and they’re fairly ubiquitous. They’re in your cell phones, electric vehicles, robotics, cordless tools and vacuums – you name it. Until somebody “builds a better mousetrap,” lithium batteries will continue to be the go-to for emerging tech. Global X Lithium & Battery Tech ETF (LIT) is a relatively new fund that offers investors exposure to green stocks in the lithium and battery space, but it’s certainly not the only player in the game.
Investors also have the option of investing directly in lithium miners and individual battery manufacturers if they find that that type of direct exposure better fits their needs.
A Green ETF in Rare Earth
Rare earth elements are exactly what the name implies: a group of 17 rare metallic elements that also happen to be indispensable for high-tech products. You’ll find small amounts of them in everything from cell phones, computer hard drives, and flat screen TVs, to weapons systems and sonar. Because the metals have highly specific uses (and are difficult to spell and even harder to pronounce), suffice it to say that investors typically target the mining companies that extract the elements. The majority of global production of rare earth elements comes from China, which makes direct investment in the exploration and mining companies a little more difficult than some of the previously mentioned green stock categories.
Typically, investors purchase either over-the-counter listed shares, broad metal and mining funds, or something like the VanEck Vectors Rare Earth/Strategic Metals ETF (REMX), which is a more targeted investment.
With so many players, it’s impossible to predict which green stocks will make the technological breakthrough that turns them into the next Tesla, but one thing is for certain: there’s growth ahead.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More