7 ESG Stocks to Buy as Activists Take Aim at Big Oil

Consumers are demanding more clean energy, and investors are paying close attention to the global transition to renewable resources. The environmental, social and corporate governance (ESG) sectors are growing in response. As the oil industry faces criticism for environmental concerns, investors who are looking for energy stocks should consider buying these seven ESG stocks in 2021.

According to the International Energy Agency (IEA), “the growth rate in the world’s renewable energy capacity jumped 45% in 2020.” Over the next two years, the IEA expects 90% of worldwide power capacity increases to come from renewable energy sources.

Meanwhile, oil majors such as BP (NYSE:BP), Chevron (NYSE:CVX), ExxonMobil (NYSE:XOM), and Royal Dutch Shell (NYSE:RDS-A, NYSE:RDS-B) are also setting ambitious climate targets. After all, according to Our World in Data, “three-quarters of global greenhouse gas emissions result from the burning of fossil fuels for energy.”

Clean energy comes from natural sources and includes wind, water, tidal, solar, geothermal and biomass energy. Consumers are drawn to the industry by a range of motivations, including concerns about climate change, depletion of fossil fuels, technological changes, electric vehicles (EVs) and prices of petroleum-based fuels. Here are seven ESG stocks that deserve your due diligence:

• Enphase Energy (NASDAQ:ENPH)
• First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (NASDAQ:GRID)
• iShares Global Clean Energy ETF (NASDAQ:ICLN)
• Nextera Energy (NYSE:NEE)
• Orsted (OTCMKTS:DNNGY)
• VanEck Vectors Low Carbon Energy ETF (NYSE:SMOG)
• Vestas Wind Systems (OTCMKTS:VWDRY)

ESG Stocks: Enphase Energy (ENPH) 

52-week range: $37.81 – $229.04

Headquartered in Fremont, California, Enphase Energy is a leading supplier of microinverter-based solar energy systems. The current chip shortage could negatively affect the company’s supply chain and sales, but its robust first-quarter financials may alleviate investors’ concerns.

In Q1, Enphase saw a 47% year-over-year (YOY) increase in revenue to $301.8 million. Net income for the quarter was $78.7 million with 52% YOY growth. Diluted earnings per share (EPS) were 56 cents. Cash and equivalents came at $1.49 billion.

CEO Badri Kothandaraman commented, “We reported record quarterly revenue in the U.S., Europe, and Australia, despite normal seasonality in the first quarter.” For the second quarter of 2021, Enphase Energy expects to generate $300 million to $320 million in revenue compared to $125.5 million in Q2 2020.

ENPH stock shares returned over 165% in the past 12 months and hit a record high of $229.04 in early February. Since then, the stock has come under pressure and is currently hovering around $140. Forward price-to-earnings (P/E) and current price-to-sales (P/S) ratios are 77.52 and 22.74 respectively. Long-term investors could regard the recent decline as an opportunity to buy into ENPH stock at a lower price.

First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund (GRID)

52-Week Range: $52.45 – $92.25
Dividend Yield: 0.6%
Expense Ratio: 0.7% per year

The First Trust NASDAQ Clean Edge Smart Grid Infrastructure Index Fund is an exchange-traded fund (ETF) that invests in grid and electric energy infrastructure stocks. These businesses typically focus on energy storage and management, networks, electric meters or software for the grid infrastructure sector.

GRID follows the NASDAQ OMX Clean Edge Smart Grid Infrastructure Index and has around $394 million net assets. The fund has holdings in several sectors, with 16.6% in electronic equipment, 14.22% in electrical components and equipment and 13.2% in diversified industrials.

The top 10 holdings account for nearly 60% of all 70 holdings in the fund. They include Switzerland-headquartered automation technology group ABB (NYSE:ABB); heating, ventilation and air conditioning (HVAC) company Johnson Controls International (NYSE:JCI); power management group Eaton (NYSE:ETN); Ireland-based auto parts company Aptiv (NYSE:APTV); and French Schneider Electric (OTCMKTS:SBGSY), which provides energy solutions for clients.

GRID benefited from investors’ appetite for clean energy sources and is up over 50% since last year. It hit a record high of $92.25 on June 9. A short-term decline toward $87.50 would offer a better entry point for buy-and-hold investors. Names in the fund are also expected to increase earnings in the coming quarters.

ESG stocks: iShares Global Clean Energy ETF (ICLN)

52-week range: $11.76–$34.25
Dividend yield: 0.42%
Expense ratio: 0.46% per year

The iShares Global Clean Energy ETF gives access to firms that produce solar, wind, and other renewable energies. ICLN, which has 82 holdings, tracks the S&P Global Clean Energy Index.

In terms of holdings across the globe, the U.S. tops ICLN’s list with over 38% of holdings, followed by Denmark at 13.72% and Spain at 6.83%. The top three sectors of the fund include electric utilities, which make up 38.75% of the fund, heavy electrical equipment at 14.53%, and renewable electricity at 13.66%.

The fund’s net assets are $5.87 billion, and 48% are accounted for by the 10 largest holdings. The top three names are Vestas Wind Systems, Orsted and Enphase Energy.

Over the past year, ICLN returned over 75% and saw a multi-year high in January. But since then, the fund has come under pressure. So far in the year, it’s down over 20%. At this price level, investors could profit if they buy ICLN.

NextEra Energy (NEE) 

52-week range: $58.44– $87.69
Dividend yield: 2.13%

Juno Beach, Florida-headquartered NextEra Energy owns Florida Power & Light Company, the largest rate-regulated electric utility in the U.S. It serves more than 5.6 million customer accounts.

NextEra Energy also owns a competitive clean energy business, NextEra Energy Resources. The company claims that the subsidiary, “together with its affiliated entities, is the world’s largest generator of renewable energy from the wind and sun and a world leader in battery storage.” NextEra Energy also owns seven commercial nuclear power units in the U.S. that generate emissions-free electricity.

The company announced Q1 financials at the end of April. Adjusted net earnings grew nearly 14% YOY from $1.17 billion, or 59 cents per share, in Q1 2020 to $1.33 billion, or 67 cents per share, in Q1 2021.

CFO Rebecca Kujawa commented, “NextEra Energy is off to a terrific start to 2021 and has made excellent progress in the core focus areas that we discussed on the last call. Adjusted earnings per share increased nearly 14% year-over-year, reflecting successful performance across all of the businesses.”

After the release of Q1 financials, management kept its previous guidance unchanged. For 2021, the company expects an adjusted EPS level of $2.40 to $2.54. For 2022 and 2023, NextEra forecasts 6% to 8% growth from its 2021 adjusted EPS level.

In late January, NEE stock hit an all-time high. But the shares are down about 6% year-to-date. Forward P/E and current P/S ratios are 28.82 and 8.35, respectively. Potential investors should view any decline toward $70 or lower as a good opportunity to buy the stock.

ESG stocks: Orsted (DNNGY) 

52-week range: $37.03– $76.47
Dividend yield: 1.31%

Denmark-based Orsted constructs and operates green energy facilities like wind farms, energy storage spaces and bioenergy plants. The company provides innovative waste-to-energy solutions and smart energy products for its customers. 

The company currently has 12,023 MW of installed capacity, which includes onshore wind and solar PV, offshore wind capacity, and biomass capacity. Management aims to reach 50 GW of installed capacity by 2030.

Orsted released its first-quarter earnings at the end of April. Revenue was 18.9 billion DKK , an increase of 23% YOY. Profit for the period totaled 1.6 billion DKK, nearly 52% lower than that of Q1 2020. The Danish group ended the quarter with 7.8 billion DKK of cash on hand.

CEO Mads Nipper stated, “Our operations and financial performance continued to remain solid despite the Covid-19 pandemic, and we maintain our full-year EBITDA guidance of DKK 15-16 billion.”

In the past 52 weeks, DNNGY stock returned over 20% and hit an all-time high in January. But so far in 2021, the shares are down over 30%. Forward P/E and current P/S ratios are 31.55 and 8.86, respectively. Long-term investors should consider investing around these levels.

VanEck Vectors Low Carbon Energy ETF (SMOG)

52-week range: $76.88–$195.55
Expense ratio: 0.62% per year

The VanEck Vectors Low Carbon Energy ETF invests in firms in the alternative energy space. These businesses typically derive power from bio-fuel, wind, solar, hydro and geothermal sources. The ETF began trading in May 2007.

SMOG follows the Ardour Global Extra Liquid Index. They have 65 holdings throughout the world, with over 30% in the U.S., 16.42% in China and 10.9% in Denmark. The top three sectors of the fund include utilities, which comprise 38.2% of the ETF, industrials at 23.6%, and the consumer discretionary sector at 21.3%.

Net assets are more than $293 million, with the ten largest holdings constituting over 56% of that amount. Among the leading names are NextEra Energy, Spain-based Iberdrola (OTCMKTS:IBDRY), and EV darling Tesla (NASDAQ:TSLA).

Over the past year, SMOG returned 80% and hit a record high in January. But investors have hit the “sell” button and the stock is down 11% since the beginning of 2021. Potential investors should buy the dip.

ESG stocks: Vestas Wind Systems (VWDRY) 

52-week range: $6.55– $17.47
Dividend yield: 0.76%

Vestas Wind Systems is another Danish company that manufactures and installs wind turbines across the globe. It is the market leader in global onshore wind turbine installations.

At the beginning of May, Vestas released first-quarter financial figures. Revenue was EUR 1.96 billion, a decline of 12% YOY. The decrease from last year can be attributed to lower activity levels and supply chain constraints. Vestas’ bottom line remained in red, and the company posted a 57 million EUR loss.

CEO Henrik Andersen commented, “Although we have started the year a bit slower than expected, we remain positive we will catch up throughout the rest of the year by maintaining a strong focus on executing our 2021 goals and mid-term strategic priorities.”

Management’s 2021 revenue expectation is in the range of 16 billion EUR to 17 billion EUR compared to the 2020 figure of 14.8 billion EUR.

VWDRY stock is down 27% so far this year. Forward P/E and P/S ratios are 32.79 and 2.08, respectively. Any further decline toward the $11 level would improve the margin of safety for long-term investors.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.