Can Investors Clean Up With Clean Energy?

Adam Johnson

Portfolio Manager

This week’s reader question: With gas prices high and oil supply chains disrupted, is now a good time to buy clean energy stocksA financial instrument giving the holder a proportion of the ownership and earnings of a company.?  

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 stockA financial instrument giving the holder a proportion of the ownership and earnings of a company. 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.

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.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.