Renewable energy stocks: here’s where I’d invest £1,000 right now

With renewable energy stocks becoming increasingly popular, Jonathan Smith outlines some favourite shares from this area that he’d buy.

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Renewable energy stocks are becoming increasingly popular with investors. I think this is part of the broader move towards ESG investing, which focuses on buying stocks that are trying to be sustainable with regards to the environment and society. Renewable energy is a broad term to use, but ultimately it looks to use non-depleted resources and to avoid polluting the environment. If I had £1,000 to invest right now, here are the stocks I’d be looking at.

Electric cars

As I mentioned earlier, renewable energy stocks can include a broad range of firms. I’d classify electric car companies in this space. Examples include Tesla (NASDAQ: TSLA) and NIO (NYSE: NIO). Both companies manufacture electric cars, and have done for several years. In terms of the market, although other companies are starting to move into the space, these two are dominant so far.

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Just because I want to invest for the energy theme, I don’t have to sacrifice performance. Tesla has managed to turn a corner and is now profitable. This helps more traditional investors like myself to more seriously consider buying shares. Yet even when the company wasn’t profitable, investors who believed in the outlook for this renewable energy stock earned good rewards. The share price has risen 10x since December 2019.

NIO is also seeing strong demand for electric cars. It delivered 8,023 cars in June of this year, up 116% year-on-year. In a recent article, I showed that NIO is one of the most popular stocks being bought by UK Millennials. So it appears that the stock has broad appeal across the age range of investors.

One risk with these stocks is that there’s a lot of anticipation and optimism built into the shares already. For example, the price-to-earnings ratio for Tesla is very high. So if performance in coming years doesn’t match up with what people had hoped for, it could see a hefty share price fall.

Renewable energy utility stocks

With another chunk of my £1,000, I’d look to invest in utilities. I’m particularly focused of companies such as SSE (LSE: SSE). It’s a large energy provider that’s really making a push towards renewables.

It has an aim to treble renewable output by 2030, along with other sustainability goals. These include cutting carbon intensity by 60% and building electricity networks to power 10m electric cars by 2030. 

One element I like about buying utility stocks like SSE is that they typically have lower volatility than growth stocks like Tesla or NIO. In this way, I can use it to counterbalance holding those other stocks with portions of my £1,000.

Clearly, a risk with a stock like SSE is that the goals set for 2030 are a long way away. Having a vision is one thing, delivering on it is something else. So I need to be careful that these promises aren’t just for show and that it actually starts to make progress towards it.

Overall, I’d split my £1,000 between renewable energy stocks from both the US and UK. I’d also mix it up with some defensive and some more aggressive selections.

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jonathansmith1 has no position in any share mentioned. The Motley Fool UK owns shares of and has recommended NIO Inc. and Tesla. 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.

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