In this content I am presenting my personal opinion as an active private investor. This content is not intended to provide investment, financial, accounting, legal, tax or other professional advice and should not be relied upon or regarded as a substitute for such advice.
These are the five highest-valued climate-saving stocks you can buy. Are they worth a look?
Sustainable investing does more than support responsible business practices. Top 5 pure climate stocks by market capitalization change stocks also anticipate changes in global markets and in a regulatory environment that increasingly emphasizes the prevention of catastrophic climate change, helping investors profit now and in the uncertain times that lay ahead. But which environmental stocks are truly worth your consideration? We’ve invested years into refining a method to answer just that question.
Our methodology screens tens of thousands of stocks traded in hundreds of exchanges worldwide to identify a select list of pure climate plays. Our rigorous approach seeks to produce a list of companies whose current or planned business strategies allow them to generate 100% of their revenue through climate-friendly practices. We thoroughly review each company’s business model and technology profile to cut through the hype and focus our attentions on businesses that are fully prepared to support global net-zero emissions by 2050. And we validate our findings each quarter by carefully analyzing each company’s reports.
While an increasing number of companies fit our criteria as pure climate plays, fewer have the financial standing and market presence to represent compelling investment opportunities. Let’s look more closely at the five companies on our list that boast the largest market capitalization.
Five pure climate change stocks that should be on your radar
When a company makes all of its profits from activities that achieve net-zero carbon emissions while commanding a high level of market capitalization, it is prepared to lead its industry now and well into the future. Here are the five highest-valued pure climate plays on our list, and some reasons for you to consider adding them to your portfolio.
Tesla – $699.25b market capitalization
Founded as Tesla Motors in 2003, US-based Tesla, Inc. produces electric cars, battery energy storage, solar electricity solutions, and related products. Its first vehicles were intended to sell at high prices and low volumes as the electric-car market developed and achieved economies of scale. Subsequent models have sold at lower prices and higher volumes.
Tesla does not advertise directly, nor does it support a network of dealership franchises. In a similar spirit, the company is notable for its lack of outsourcing for auto components: its supply chain is highly vertically integrated.
Tesla’s total GAAP gross margin increased by 24.1% in Q2 2021 against its Q1 figure, and more than doubled its year-over-year mark. Its income from operations more than trebled over the last fiscal year, and its adjusted EBITDA more than doubled.
CSX – $76.36b market capitalization
CSX Corporation was founded in 1980, capping a series of mergers involving some of the USA’s oldest railways. It operates more than 20,000 miles of railroad track throughout the eastern US, where it connects every major metropolitan area, and south-eastern Canada.
Headquartered in Jacksonville, Florida, CSX is a holding company with several wholly owned subsidiaries, including CSX Transportation, CSX Technology, and CSX Real Property.
In Q2 2021, CSX posted a year-over-year revenue increase of 33%, reflecting growth across all lines of its business and a decrease in expenses, which dropped 9%. Its net EPS more than doubled.
Canadian National Railway – $76.21b market capitalization
CN, as it is commonly known, is a Montreal-based freight rail system with more than 20,000 route miles of railway track. Most of its network spans Canada, but it also operates throughout the US Great Lakes region and, through its 1998 acquisition of the Illinois Central Railroad, down to New Orleans and Mobile, Alabama on the Gulf Coast. CN has operated for more than a century since its founding in 1919.
CN’s Q2 report reaffirmed its 2021 financial outlook, including an expectation of double-digit adjusted EPS growth. Its operating performance improved significantly across most metrics as CN resumed its standard operating procedures following adjustments made in the wake of the COVID-19 pandemic. Operating income increased 76% year-over-year.
Ørsted – $69.52b market capitalization
Danish multinational Ørsted A/S is the world’s largest developer of offshore wind power solutions. It is Denmark’s largest power supplier, delivering nearly half the country’s electricity, and operates facilities in Sweden, Germany, the Netherlands, Norway, and the UK.
Though Ørsted is listed publicly on Nasdaq’s Copenhagen exchange, the Danish government holds a majority interest in the firm, a reminder of its origins as the state-owned Dansk Naturgas A/S in 1972.
Aided by the sale half its interest of two major Dutch wind farms, Ørsted’s overall revenue rose 17% year-over-year in Q2 2021, and EBITDA jumped 177%. Operating profit climbed 452% to more than USD $985m. The company overcame a Q2 2020 loss to post profits of more than USD $875m in Q2 2021.
Norfolk Southern – $65.10b market capitalization
The Norfolk Southern Corporation operates nearly 20,000 route miles of railroad track throughout the eastern US and into Montreal. Its operations are focused on freight transportation, and Norfolk Southern operates the largest intermodal freight network in the eastern US. Founded in 1982 as a holding company for two long-established railways, the company recently relocated its headquarters from Norfolk, Virginia to Atlanta.
As might be expected, Norfolk Southern’s Q2 2021 performance was markedly better than its previous year’s. Operating revenues increased by 34%, income rose by 91%, and diluted EPS jumped 114% from Q2 2020.
A Summary Look
The table below lays out some basic financials for the companies we have discussed. All figures are expressed in USD; figures for Ørsted were originally reported in DKK, and converted using a rate of $1 USD = kr. 6.32 DKK.
Beyond the numbers: which pure climate plays make sense for your portfolio?
At first glance, each of these climate-saving stocks shows solid free cash flow, with the free cash flow to net income ratio of CSX, NS and Ørsted potentially shining a warning light. These three climate pure players might not be collecting enough cash to meet their short-term obligations with ease, but this can only be confirmed after a deeper analysis of their debt situations.
All five companies feature relatively high P/E ratios. Investing in them is therefore not cheap. A fundamental analysis of each stock can tell if its current valuation is fair and identify its realistic potential for solid future returns.
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