2 renewable energy stocks you may never have heard of

Renewable energy stocks are in the investing spotlight for their future profits potential. Andy Ross finds two he likes but is waiting before he jumps in.

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Windmills for electric power production.

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Renewable energy stocks could well be big winners over the coming years. Investing in the sector could be very lucrative as boardrooms take the environment more and more seriously in response to consumer pressure.

The direction of travel is clear. A recent survey of children showed many viewed the environment as their biggest concern. There’s a whole generation of future consumers, committed to the environment, who’ll be adults in not so many years.

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So my working assumption is that renewable energy stocks have a brilliant long-term future. My trick is to back the right horse, at the right time, at the right price!

The ambitious energy company

Ceres Power (LSE: CWR) is looking to use its technological know-how to become an asset-light licensing and royalties business. Ceres technology is embedded in hydrogen fuel cells, helping the world transition towards clean energy. It has lucrative partnerships with companies like Bosch and Doosan.

The strategy could be very attractive to investors because asset-light business models, think of platform websites like Moneysupermarket and Rightmove, for example, can command a premium. That’s because they often have high margins, low costs and high cash conversion. All of these are things investors want to see and as such are willing to pay a higher price for.

So the business model is pretty attractive and Ceres Power already has very noteworthy clients.

There could be a long way to go though. Ceres Power needs to keep spending on R&D because it’s in a very competitive market. Plus it’s loss-making and could continue to be so for many years. The number of shares has gone up every year as well, so investors are being diluted, in the end, that will likely make it harder to make a profit from investing. It’s a stock I watch with interest but I don’t think I’ll be buying it any time soon.

Transitioning to a renewable energy stock

Johnson Matthey (LSE: JMAT) may have its history in chemicals and heavier industry, but it’s transitioning to focus on developing technologies to help store and develop renewable energy. It’s currently constructing a new factory in Poland to manufacture components for electric vehicle batteries.

Beyond that, it’s also working to develop green hydrogen, an area of intense scientific and government focus. It’s believed that green hydrogen, once commercially viable, could have huge potential. If Johnson Matthey could be at the front of the pack in developing green hydrogen, the rewards currently are incalculable but could be huge. The company also has 15 blue hydrogen (using fossil fuels to create the hydrogen) projects in its pipeline globally.

I see Johnson Matthey as a company with a strong focus on becoming a renewable energy stock. I believe that if it’s successful, it could command a higher rating and the share price, as a result, could be much higher. But for now, I’ll watch its progress with interest before I add any to my portfolio. There are a lot of players in the renewable energy space and I don’t want to jump in too soon. It’s also very possible that Johnson Matthey’s transition may not pay off for shareholders. I’ll wait and see.

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Andy Ross owns no share mentioned. The Motley Fool UK has recommended Moneysupermarket.com. 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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