Can Investors Clean Up With Clean Energy?

Can Investors Clean Up With Clean Energy?

This week’s reader question: With gas prices high and oil supply chains disrupted, is now a good time to buy clean energy stocks?  

Adam Johnson, portfolio manager, Adviser Investments’ American Ingenuity strategy:

I’m a big believer in clean energy companies. Whether you call it “renewable,” “green” or “alternative” energy, we know some of these growing businesses will be the big brand names of tomorrow.

But right now, their stock prices are depressed for a litany of reasons.

Supply chain disruptions have been one major speed bump. Solar panel production is being impeded by the U.S. ban on imports of polysilicon from China due to human rights violations. Likewise, we’re seeing shortages of semiconductors and other key materials.

Interest rates are another headwind. Many clean energy firms are young companies that need to raise capital, and as rates go up, their financing costs escalate. On top of that, many don’t have earnings yet. When I try to place a value on future earnings, higher interest rates translate into lower values today.

Portfolio Manager Adam Johnson and quote saying "I believe long-term trends are providing a power tailwind for clean energy and the companies that provide it."

Overall, clean energy stocks fall into the “growth” category, which is decidedly out of favor with investors right now. But that’ll change. Despite the recent big price declines—or rather, because of the lower prices on offer today—now may be a pretty good time to be selectively buying in the aggressive growth portion of your portfolio.

But don’t buy willy-nilly. I think it’s crucial to hold out for quality companies that are on track to be the “best in breed.” To me, that means they have manageable amounts of debt and are growing their top-line revenue. Another critical factor is a quality management team that can clearly articulate a pathway to future profits.

Remember, we’re not talking about cryptocurrency; these companies are providing actual goods and services. I believe long-term trends are providing a power tailwind for clean energy and the companies that provide it.

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