President Joe Biden has set out plans to put the U.S on a path to become carbon neutral by 2050. Across the globe, governments are also promising similar actions. The impact on individual stocks in the short-term is still unclear. However, the long-term shift is inevitable. These two companies are benefiting from the green trend and may be worth a buy.
Tesla (NASDAQ: TSLA) is an American electric vehicle and clean energy company led by visionary CEO Elon Musk.
Tesla is undoubtedly the leader in the electric vehicles space and in April it was reported that the company controls approximately 11% of the global EV market, which is growing rapidly. In its latest quarterly report, Tesla’s revenue increased by 74% year-over-year (YoY) to $10.39 billion. These results were also boosted by sales of Bitcoin and regulatory credits.
Tesla continues to invest and increase vehicle capacity in its existing factories with plans for a new factory in Berlin, opening this year. Deliveries have risen significantly in recent years as the company expands. Autonomous driving and the data that Tesla has continued to collect is a valuable tool. Tesla is ahead of the competition in this space with over 3 billion miles in autopilot mode traveled which is significantly more than its competitors.
Another opportunity for Tesla beyond automotive is its solar and energy business. Its energy business had record storage in Q1 and solar deployment. In 2020, Tesla’s energy generation and storage segment only accounted for around $2 billion of Tesla’s total revenue of $31.5 billion, but Musk believes it can rival its automotive business in years to come.
It would be impossible to talk about Tesla without touching on its high valuation, with its stock soaring more than 600% in 2020. However, recently the stock has fallen almost 24% over the past six months and has become more volatile. Although it is ahead of its peers in autonomous driving and production of EV, the question is whether Tesla can maintain its foothold with increasing competition.
Revenue from regulatory credits and Bitcoin sales has also worried investors. Many argue that this is not a sustainable source of income long-term, and if this decreases, it could hurt the business and the stock price.
NextEra Energy (NYSE: NEE) is a clean energy company headquartered in Florida and owns numerous subsidiaries. Its largest subsidiary, Florida Power & Light Company, serves more than 5 million customer accounts in Florida. In 2020, NextEra Energy was ranked on Fortune’s 2020 list of ‘World’s Most Admired Companies’.
NextEra Energy as a whole produces more wind and solar energy than any other company worldwide and is one of the most valuable energy companies in America.
Despite being a utility stock, NextEra Energy has gained just over 140% in the last five years. It reported mixed quarterly results for the first quarter. While NextEra’s adjusted earnings per share grew 14% year-over-year (YoY), revenues of $3.73 billion were down from $4.61 billion in the same period last year.
NextEra Energy has also revealed plans for a $65 million green hydrogen facility plant which is planned to start by 2023. Green hydrogen is one path to a sustainable future and could be used to eliminate the use of fossil fuels. It is taking a “toe in the water” approach according to management but has also developed a pipeline of approximately 50 potential green hydrogen projects. It believes the market opportunity is 19-24 times that of today.
Its ambitions for the future don’t stop with green hydrogen, and the company has plans to invest $50 billion in the next few years in different energies.
The stock is trading at rich multiples, particularly given that it operates in the utility sector.
Another thing to watch is the partnership between NextEra Energy (parent company) and NextEra Energy Partners. NextEra Energy sells completed assets to its partner to fund its spending. However, NextEra Energy partners debt has continued to grow, and its credit rating has dropped, which is worth noting as it could have a negative impact on both businesses.
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MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Netflix. Read our full disclosure policy here.
Contributing Writer at MyWallSt
Colm's favorite stock is Virgin Galactic as it is representative of his visions for our world in the future.