Why AES Corp's Shares Popped 12% Today

MarketsMotley Fool

What happened

Shares of utility giant AES Corp (NYSE: AES) jumped as much as 11.5% in trading Thursday after it was revealed that activist investor ValueAct Capital Management's founder Jeffrey Ubben has been given a board seat and will push for more renewable energy. At 11:55 a.m. EST, shares were still trading 9.1% higher on the day.

Continue Reading Below

So what

Ubben and ValueAct are pushing for AES to accelerate selling coal assets and reinvesting the money into renewable energy assets that have attractive investment profiles. Wind and solar assets, in particular, can provide long-term contracted cash flows that utilities can leverage to generate double-digit returns. Selling higher-risk coal assets could help lower borrowing costs to boost those returns.

AES will also continue to be a leader in energy storage through its joint venture with Siemens called Fluence. Energy storage is an increasingly important asset in the utility industry, and it should be a growth business for AES.

Now what

The involvement of a well-known activist investor isn't necessarily the reason to be bullish on AES long-term, but it's a nice data point in your investment thesis. More than most utilities are, I think AES is investing in next-generation assets that will modernize its fleet and reduce risk overall. Getting an activist to put his weight behind doubling down on renewables is a good sign for the company, and as operations improve, I think the stock will be a solid performer as well.

10 stocks we like better than The AES CorporationWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and The AES Corporation wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of January 2, 2018

Travis Hoium has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Continue Reading Below