You can do good while you're also doing well. Some companies set out to make the world a better place, and they also happen to have solidly profitable business models. Owning their stocks lets you sleep at night, both from a financial angle and in terms of the way the businesses influence the world we live in.
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Mind you, that combination is a somewhat rare find. We asked a few of your fellow investors at The Motley Fool for their best ideas in the field of responsible investing. They came up with a trio of sustainable energy experts, including TerraForm Power (NASDAQ: TERP), NextEra Energy (NYSE: NEE), and Tesla (NASDAQ: TSLA).
No, that's not a typo. Read on to learn more.
There is no "greener" company in the world
Sean Williams (NextEra Energy): If you want the world to be in a better place for the next generation, but you'd also like to profit from it in the interim, may I suggest taking a closer look at leading electric utility NextEra Energy.
Electricity is a basic-needs good, meaning if you own a home, you're almost assured to need it. This creates some semblance of predictability to demand and cash flow for electric utilities, which investors seem to like. But NextEra Energy isn't your traditional electric utility.
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NextEra is perhaps the "greenest" company on the planet, with more of its electricity generation devoted to alternative energy than any other utility. Last year, NextEra generated a combined 44.2 GWh of from the combination of wind and solar power, placing it at the top of the pack of all electric utilities around the world. It also has more wind capacity than all but six countries in the world! Although clean-energy projects aren't cheap, NextEra's focus on wind and solar is helping to drive down its intermediate and long-term costs, which should translate into higher margins (and happier customers, since they'll have smaller electric bills).
NextEra Energy also benefits from being a regulated utility. While some folks would suggest that being regulated puts utilities at a disadvantage in the sense that they can't just pass along price hikes at will, it's actually a good thing. Being a regulated utility ensures that wholesale electricity pricing fluctuations don't surprise management or investors. Once again, we have a very predictable business that's delivering mid to high single-digit growth.
If you want a greener tomorrow, then NextEra Energy and its superior 2.7% dividend yield just might be the stock for you.
A brighter future
Matt DiLallo (TerraForm Power): Climate change worries aside, a world powered by renewables would be better than the fossil fuel one we live in today. That's because those energy sources not only produce pollution but have been a source of conflict across the globe. Renewables like wind and solar, on the other hand, have the potential to enable countries to reduce pollution as well as break their dependence on hostile nations.
One company helping transition the world to that better tomorrow is TerraForm Power. While the wind and solar power generator stumbled a bit in recent years after taking on a pile of debt to fuel this ambitious pursuit, it's about to get back on track. The company recently secured a cornerstone investment from Brookfield Asset Management (NYSE: BAM), which has a history of creating value for investors in the renewable power sector.
Brookfield has developed a plan to get TerraForm Power back on a sustainable growth path. That strategy includes providing it the financial resources to expand as well as giving it the right of first offer on a 3,500 MW portfolio of wind and solar plants it currently controls. One thing that's worth noting about that inventory is that 2,300 MW are development-stage projects, which, if built, will help get the globe another step closer to ending its addiction to fossil fuels. TerraForm Power's role in that endeavor makes it an excellent way to invest in the hope of a better future.
These sexy electric cars are just the beginning
Anders Bylund (Tesla): I know, you think of Tesla as a pure-play bet on electric cars right now. The energy generation and storage division, which sells solar panels and large battery packs, accounted for just 10% of Tesla's total sales in the recently reported second quarter of 2017. That's way up from 0.3% in the year-ago period, thanks to the acquisition of SolarCity, but still a forgettably small piece of Tesla's business model.
That will change in the long run.
Tesla's stated objective is to trigger a complete overhaul of energy production and usage around the world. As Tesla co-founder and CEO Elon Musk put it 11 years ago:
The overarching purpose of Tesla Motors (and the reason I am funding the company) is to help expedite the move from a mine-and-burn hydrocarbon economy toward a solar electric economy, which I believe to be the primary, but not exclusive, sustainable solution.
Ten years later, Musk restated Tesla's endgame this way:
The point of all this was, and remains, accelerating the advent of sustainable energy, so that we can imagine far into the future and life is still good. That's what "sustainable" means.
Electric cars are just a first step in that direction. The success of Tesla Model S and Model X created a reasonable business case for building the first Gigafactory, which will more than double the global supply of rechargeable batteries. Marry that to a large-scale solar panel operation, and you have a reasonable energy solution for both businesses and homeowners. Over time, more factories and other new projects will bring down the production and installation costs dramatically.
As a Tesla shareholder, I don't worry when I see other car makers producing high-quality electric cars. If anything, that means Elon Musk's long-term strategy is working. Things are moving in the right direction. Looking back from the year 2040 or 2050, we might have forgotten about Tesla's early days in the auto industry. We'll know the company as an energy titan by then, sparking many business revolutions along the way.
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Anders Bylund owns shares of Tesla. Matthew DiLallo owns shares of Brookfield Asset Management. Sean Williams has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Tesla. The Motley Fool has a disclosure policy.