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Think Cleantech Is The Future? An ETF For Long-Term, Sustainable Energy Bulls 

Published 26/04/2022, 09:32
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Increasing awareness about global warming and sky-high energy prices have sparked renewed interest in clean technology (cleantech) stocks.

Experts believe we might be witnessing a long-term structural shift in global energy use. In this environment, companies that support alternative sources present positive long-term potential.

Cleantechs comprise a broad range of sub-sectors, including eco-friendly energy, alternative energy, clean air and water, clean manufacturing, energy storage, and energy efficiency.

According to an International Energy Agency (IEA) study:

“To reach net zero emissions by 2050, annual clean energy investment worldwide will need to more than triple by 2030 to around $4 trillion.”

Meanwhile, the Biden administration has put cleantech investments on the priority list. A recent press release by the White House highlights:

“Distributed Energy Resources (DERs) – like rooftop solar, battery storage, heat pumps, and electric vehicles – will cut consumer costs, improve public health, strengthen U.S. energy security, and help meet the President’s goal to reduce emissions 50-52% below 2005 levels in 2030.”

Yet, despite potential long-term tailwinds, many cleantech stocks have been struggling over the last few months. Profit-taking, recent market turmoil, and higher interest rates have meant headwinds in 2022.

For instance, so far this year, the ProShares S&P Kensho Cleantech ETF (NYSE:CTEX) has plummeted almost 24%. Meanwhile, the S&P 500 index has declined around 9.8% since January.

CTEX Weekly Chart

As a result, several stocks and exchange-traded funds (ETFs) that focus on alternative energy technologies offer better value than in late 2021. Let’s take a look.

Examples Of Cleantech Stocks

InvestingPro introduces a range of cleantech shares that could appeal to long-term investors. Among the large-capitalization (cap) names are Tesla (NASDAQ:TSLA); Israel-based SolarEdge Technologies (NASDAQ:SEDG), which provides inverter systems for solar photovoltaic installations; hydrogen fuel cell technology innovator Plug Power (NASDAQ:PLUG); solar energy group First Solar (NASDAQ:FSLR); organic light-emitting diode (OLED) manufacturer Universal Display (NASDAQ:OLED); and geothermal plants operator Ormat Technologies (NYSE:ORA).

High-growth cleantech stocks include Plug Power; Chinese polysilicon manufacturer Daqo New Energy (NYSE:DQ); solar energy systems company Sunrun (NASDAQ:RUN); Elon Musk’s Tesla; Canada-based solar power company Canadian Solar (NASDAQ:CSIQ); SolarEdge Technologies and Universal Display.

Meanwhile, investors who pay attention to analysts’ price targets might be interested to know that several cleantech stocks could likely see a significant upside. Examples include Daqo New Energy; Sunrun; Plug Power; Canadian Ballard Power Systems (NASDAQ:BLDP), which develops proton exchange membrane (PEM) fuel cell products; and engineered products and systems provider ESCO Technologies (NYSE:ESE).

Led by the heavy sell-off in growth stocks especially, many cleantech shares have been under pressure since November 2021. Among those that have had the biggest recent price pullbacks are Sunrun; Ballard Power Systems; SolarEdge Technologies; TPI Composites (NASDAQ:TPIC), which manufactures composite wind blades for the wind energy market; PLUG; OLED; CSIQ; and Veeco Instruments (NASDAQ:VECO) which develops semiconductor and thin-film process equipment.

Finally, in terms of the most undervalued stocks, we have Daqo New Energy; Sunrun; Universal Display; Veeco Instruments; and China-based JinkoSolar (NYSE:JKS), which focuses on the photovoltaic (PV) segment.

We would also like to introduce an ETF for those who want to invest in a basket of cleantech stocks.

First Trust NASDAQ Clean Edge Green Energy Index Fund

  • Current Price: $54.49
  • 52-week range: $49.13 - $83.71
  • Expense ratio: 0.60% per year

The First Trust NASDAQ Clean Edge Green Energy Index Fund (NASDAQ:QCLN) gives access to US-listed companies that are at the center of clean-energy technologies. These names typically focus on alternative energies, solar photovoltaics, batteries, electric vehicles (EVs), and fuel cells. The fund started trading in February 2007.

QCLN Weekly Chart

QCLN, which tracks the NASDAQ Clean Edge Green Energy Index, has 65 holdings. With regards to sub-sectors, we see Renewable Energy Equipment (22.04%), Automobiles (19.81%) and Semiconductors (16.17%), Alternative Electricity (12.14%), Chemicals: Diversified (9.56%) and Alternative Fuels (3.59%).

The top 10 stocks comprise well over half of the net assets of $2.04 billion. Among them is Tesla; lithium miner Albemarle (NYSE:ALB); chipmaker ON Semiconductor (NASDAQ:ON); solar microinverter group Enphase Energy (NASDAQ:ENPH); and Chinese EV maker Nio (NYSE:NIO).

QCLN hit a multi-year high in November 2021. Yet it is down about 19.8% this year. P/B and P/S ratios stand at 4.38x and 5.30x, respectively.

It is not easy to know when the selloff in global shares will end. However, long-term investors bullish on cleantech could consider buying an ETF like QCLN in the second quarter.

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