If I had £2,000 to invest in green energy stocks today, I’d buy shares in companies that provide the equipment the industry needs to grow.
Indeed, I think businesses that provide equipment such as power transformers offer a better way to invest in the sector as a whole. This is the approach I’d use rather than trying to pick winners in individual sectors such as solar or wind energy.
As such, here are two green energy stocks I’d buy with £2,000.
Green energy stocks to buy
The first company on my list is XP Power (LSE: XPP). This enterprise is one of the world’s leading developers and manufacturers of critical power control components. Its largest customer is the industrial technology sector, followed by healthcare and semiconductor manufacturing.
In its full-year results release, the company noted that an increasing emphasis by its customers on efficiency and concerns over climate change “should lead to more revenue opportunities to power renewable energy systems and controllers.” It already sees growth in the industrial technology sector, where demand for power control components for renewable energy systems is growing.
For example, last year revenues increased 17%, and the group’s order intake rose 20%.
It seems unlikely this kind of double-digit growth is sustainable. Nevertheless, as demand for green energy grows and the global economy expands, I believe the need for XP’s systems should continue to increase. That’s why I’d buy the stock for my portfolio today.
The corporation operates in a fiercely competitive sector. It’s not the only business supplying critical power control components. As such, XP needs to make sure it’s investing for the future, or competitors could grab market share. Rising costs could also hurt profit margins.
One of the problems the world is trying to deal with is renewable energy storage. Wind and solar energy are unreliable power sources. Companies and governments are building batteries to store energy and smooth out the supply to deal with this issue.
To invest in this theme, I’d buy Gore Street Energy Storage (LSE: GSF). This company was London’s first listed energy storage business. It owns a portfolio of energy storage assets across the UK and US, providing 520MW of capacity. It claims this is the largest portfolio available to a financial investor.
Additional facilities are in the pipeline. Management is reviewing 1GW of other assets to add to the portfolio.
As the green energy sector expands, I think the demand for energy storage will increase. That’s why I’d buy Gore Street for my portfolio today.
Unfortunately, the company’s first-mover advantage could become a drawback over the next few years. As the industry develops, I expect new entrants to arrive with more funding and access to better technology. This could leave Gore Street struggling to catch up. This is the most considerable risk hanging over the stock right now, in my opinion.
Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended XP Power. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.