Investing in climate change - rising temperatures, rising portfolio.
Hello community,
thank you for your great response to my last post Sin Stocks - Stocks that are considered sin sin. Today I would like to share another controversial article with you:
How do I profit from climate change?
Climate change is being talked about like a pig in practically all the traditional media, especially in Germany. I'm less interested in hyping up the next apocalypse than in taking a rational view: what megatrends are emerging and how can I invest in these trends?
To keep things interesting for you, I won't be writing the usual blah blah blah about renewable energies, electric cars, hydrogen and so on. I'm sure you're already familiar with that. I'm also interested in stocks that might only be interesting at second glance and shouldn't be found in every 08/15 portfolio.
Before we get started, one more request: let's stay on topic and talk about shares. In my opinion, moral or political discussions have no added value if no investment can be derived from them.
Impact 1: Increase in natural disasters and extreme weather
The hurricanes in the USA, the flood disaster in Arthal... each of you will be aware of one event. There is no doubt that natural disasters can cause enormous damage. The task of the next few decades will probably be to make buildings more resilient, to make cities more resilient and so on. However, the buildings that are already standing do not (yet) meet these requirements. Therefore, the first share is:
$CAT (-2,91%) Caterpillar.
With their construction machinery and clearing vehicles, they can clear up what has been destroyed. Our colleague @TheOrangeExcavator recently wrote a nice introduction to this share here on the platform.
Then, of course, there is insurance, as the need to insure against such events will increase. The insurance business model is based on calculating risks and then setting a price. If the risks increase, the price rises - and so does the need for insurance.
$MUV2 (-0,5%) Munich Re has been able to increase its profits by over 20% p.a. in the last 5 years. In addition, there is a dividend yield of around 3.3%, which is constantly being increased. The share is currently performing well - in my view, something for the watchlist.
Much more exciting from my point of view are "shovel manufacturers" for insurance companies. I am talking, for example, about $VRSK (+3,32%) Verisk Analytics, which specializes in data analysis for insurance companies (and increasingly other industries). They either create analyses for their customers or offer their analysis tools for independent analyses.
Why take the risk of a single insurance company when you can rely on the supplier in the background? Cash flow and profit have been growing at double-digit rates p.a. for 5 years. Sales growth is estimated at 7.5 %. All this with high sales stability. A very interesting growth stock in my view, which could be picked up in the next correction.
Impact 2: Rise in sea level
Sea levels are expected to rise by up to 1.1 meters by 2100. Mega construction projects are needed to protect against this. Here I have (how could it be otherwise) a Dutch company on my radar: $ARCAD (-0,27%) Arcadis. The company offers planning and technical development services for construction and infrastructure projects. This is not a pure play on sea level rise - they do many projects, such as environmental remediation, mobility projects and management consulting.
Sales growth >8 % in the last 5 years, profit growth of approx. 15 % p.a. in the last 5 years speak for themselves.
It has also just performed quite well, certainly something for the watchlist. If interest rates fall again and the scope for investment increases again, this share will certainly also benefit.
Impact 3: Water shortage and drought
Sea levels are rising - and water is becoming scarce? No contradiction! We are talking about fresh water/drinking water.
In my view, the most interesting value here is $XYL (+1,33%) Xylem. They offer a wide range of water-related technologies: Transportation, testing, wastewater treatment, purification and, and, and.
Sales growth >10% in the last 5 years, estimated earnings growth of 11%. It has also just performed well, with a P/E ratio of 25 I would consider buying in. The share always comes back well.
A look at water utilities could also be worthwhile, for example $AWK (+3,25%) American Water Works. I presented the share in a post-buy article of mine - if you are interested, you can find more about the company there.
If you want a more exotic stock, you can take a look at the $TORO Toro Company. The company offers irrigation systems for agriculture, golf courses and sports fields, among other things. The less water there is, the more efficiently it has to be distributed. They are also active in "snow and ice management". Could also become more relevant in winter with increasing extreme weather events. Sales growth of over 8% p.a. in the last 5 years, profit growth of 6%. Plus a dividend of 1.6%. Currently quoted below the historical P/E ratio.
Impact 4: Changing biodiversity
How can seeds be adapted to the changing climate as a source of food for humanity? Monsanto used to be a company in this field - now part of Bayer. From my point of view, it's a collection of powder kegs that regularly blow up.
But there is also a pure play alternative: $CTVA (-0,19%) Corteva.
They produce seeds, pesticides, fungicides, etc. The key figures are somewhat mixed, but in my view it is an exciting candidate for the watch list. The business could gain more and more momentum due to climate change.
It is also becoming increasingly important to get as much as possible out of existing crops. Here I myself have $DE (-2,8%) Deere in my portfolio.
Sales growth over 5 years: 9.3 % p.a., profit growth 30.7 % p.a. in the last 5 years. P/E ratio of 12 (!).
Top dog in its field. Some also see the share as an AI investment, as they are producing increasingly intelligent machines for agriculture. Smaller farmers will probably increasingly reach their limits, it will consolidate, as only "the big players" can secure the top technologies.
Due to a certain cyclicality, I have the share (currently the only one) in my savings plan.
Impact 5: Social unrest and migration
It cannot be ruled out that new causes of war will emerge in the future over fertile soil, drinking water or similar. The big players such as $LMT (+3,53%) Lockheed or $BA. (+0,48%) BAE should be familiar to most people. Less well known is probably the $KOG (+0,39%) Kongsberg Group from Norway. Its main segments are Defense Aerospace and Maritime. Double-digit sales growth, even stronger profit growth.
Unfortunately, this can also be seen in the chart. Probably too expensive due to the current crises - but in my view the share should be kept on the radar alongside the well-known stocks.
That was my presentation of some investment cases. Even if some of them seem expensive at the moment, I think it makes sense to create a watchlist of interesting candidates at an early stage. When things go wrong, you know what's on your shopping list. Then you can get into companies that should have a tailwind in the long term.
Now it's up to you:
- What (perhaps indirect) effects do you see from climate change?
- Which shares do you think could benefit from climate change?
- Which shares do you already have in your portfolio?
I look forward to your comments.
Fun fact: When I asked my girlfriend (not really interested in shares) about possible profiteers, her timid answer was: "Umbrella manufacturers?" But I hadn't found a pure player, so there was nothing in the article 😉
You never stop learning.
Your Money Man
