3 Climate Change Actions to Consider Buying Now

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“One of the biggest trends of the 2020 decade will probably be unhappy: climate change,” I wrote in the opening of a January 2020 article in which I chose three actions to fight against climate change to consider buying: the water utility giant American Water Works (NYSE: AWK), wholesaler of swimming pool supplies Pool Corp. (NASDAQ: POOL), and emergency power specialist Generac Holdings (NYSE: GNRC).

I am even more convinced by this statement almost two years later, as the effects of climate change have recently become even more evident. In June and July, the Pacific Northwest was scorched by a heat wave that shattered many all-time records. At the end of last month, Hurricane Ida not only left more than a million homes and businesses without power in Louisiana alone, but its remains also caused catastrophic and record-breaking flooding in the northeast. densely populated.

As a combined portfolio, my three selections of climate change-related stocks have crushed the market over the past 20 months, returning an average of 158%, more than four times the S&P 500is 37.2% yield. (The stock chart follows below.) All three stocks are always worth buying if you’re a long-term investor.

Image source: Getty Images.

3 of the best actions on climate change: Overview

Society Market capitalization Dividend yield Wall Street’s projected annualized EPS growth over the next 5 years Return on shares over 1 year 10-year equity return

American Water Works

$ 32.3 billion 1.4%

8.6%

28.1% 645%

Pool Corp.

$ 18.6 billion 0.7%

17%

53.5% 1,800%
Generac Holdings $ 27.5 billion N / A

8%

137% 3.450%

S&P 500

N / A 1.31% N / A 34.1% 346%

Data sources: Yahoo! Finance and YCharts. Data as of September 17, 2021. EPS = earnings per share.

American Water Works

What is one thing that every human being is naturally called upon to do to cool off when temperatures rise? Drink more water than usual, of course. As climate change continues to increase average global temperatures, demand for fresh water will also continue to grow. And we are just one of many living things that will need more water. The same goes for agricultural crops, especially in the drought-prone Southwestern United States.

Climate change also has an impact on the supply side of the supply-demand equation. As temperatures rise, access to fresh water tends to become more expensive due to factors such as evaporation. This picture of supply and demand is not positive for consumers, as water prices are expected to continue to rise faster than inflation. But this is an ideal situation for investors in regulated, publicly traded water utilities, who have legal monopolies in their territories to sell a product that has no substitutes.

American Water Works remains, in my opinion, the best choice in water services for most investors. It is the largest and most geographically diverse publicly traded water and wastewater utility in the United States. This makes it in the best position to take advantage of the consolidation trend in the industry.

American Water provides regulated and market-based drinking water, sanitation, and other related services to approximately 15 million people in 46 states. Its regulated business will include 15 states once the sale of its business in New York State is completed. In the first half of 2021, its regulated activity represented nearly 91% of the total net income generated by its two business sectors.

Group of seven multiracial children playing with a big plastic ball in an inground swimming pool.

Image source: Getty Images.

Pool Corp.

The preceding image is a particularly refreshing scene for me, as my part of the country, like others, has experienced what are called “temperatures from July to September”. This means an extended swimming season for people in my area who have pools. As climate change continues to push up average global temperatures and extend the time that many people can enjoy their swimming pools, the cost-benefit equation of installing a swimming pool should look more appealing to a larger group. number of consumers.

Climate change is not the only factor that is expected to increase demand for swimming pools. People were spending more money on their homes – indoors and outdoors – before the pandemic started, which has accelerated this trend of home nesting. With interest rates still very low, this trend should continue.

As the world’s largest wholesaler of swimming pool supplies, Pool Corp. is best placed to take advantage of the growing demand for swimming pools. The business has also judiciously expanded into related outdoor living products, such as landscaping and irrigation products.

Wall Street has done a bad job of projecting Pool Corp’s profit growth. This type of situation can often benefit a savvy investor, as the market often values ​​a stock based largely on Street’s estimates. Over the past four quarters, not only Pool Corp. beat the consensus earnings estimate each quarter, but crushed it by an average of 63%.

AWK Total Return Price Table

Data by YCharts.

Generac

Climate change has increased the frequency and severity of many adverse weather events, including hurricanes, tornadoes, torrential rains and forest fires. These weather events often cause power outages, which were generally unintentional until recent years. Over the past two years, the California electric utilities have instituted several preventative power outages in windy, dry weather. These measures aim to reduce the likelihood of their equipment starting forest fires.

As people lose electricity in their homes or businesses more frequently or for longer periods of time, more consumers and business owners should be encouraged to purchase backup generators. This is even more true in an age when people increasingly work from home, where lighting and a computer are generally essential to get the job done.

In the second quarter, Generac’s residential backup generator shipments nearly doubled from a year ago, and the company is uniquely positioned to continue to benefit from strong demand for backup generators as it is the largest player in this market. It is also a major player in the field of commercial and industrial emergency generators. In addition, in recent years, the company has grown in the clean energy market. It manufactures battery storage systems, which can store energy from solar panels or the power grid, and related products.

Wall Street analysts have continually underestimated Generac’s earnings growth potential. So there is good reason to believe that the company’s earnings growth will exceed the 8% average annual growth expected by analysts over the next five years. For the past four quarters, the company has beaten the consensus estimate every quarter with two of the beats being significant.

At the end of the line

I will end with a sentence from my article almost two years ago: “American Water, Pool Corp. and Generac are all long-term winning stocks and should continue to perform well even if climate change stops fairly quickly (which seems extremely unlikely).

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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