Despite a significant investment in green energy, green technology stocks have underperformed the markets, with a few exceptions.
Despite the global push for renewable energy and environmentally friendly technologies, green technology stocks have faced a challenging year. While the U.S. government has invested over $1 trillion in green energy, individual companies in the sector have seen their stock prices decline due to factors such as higher costs, interest rates, equipment failures, and adverse weather conditions. The iShares Global Clean Energy ETF, the largest clean energy technology fund, is down 28.5% year-to-date. However, within the Morningstar Global Emerging Green Technologies Select 30 Index, a few stocks stand out as potential value investments.
Understanding Green Technology Stocks
Green technology refers to environmentally friendly technologies that either have a sustainable production process or utilize clean and renewable energy sources. These technologies aim to minimize harm to the environment and reduce dependence on fossil fuels. The top five companies in the Morningstar Global Emerging Green Technologies Select 30 Index are Vestas Wind Systems, Tesla, ABB, Xylem, and Samsung SDI.
Identifying Undervalued Stocks
Within the Morningstar Global Emerging Green Technologies Select 30 Index, two stocks have caught the attention of investors due to their undervalued status. These stocks are Samsung SDI and First Solar, both of which make up approximately 18% of the index. Samsung SDI specializes in the production of LCD panels and batteries, while First Solar is a leading manufacturer of solar panels. These stocks have faced challenges in the solar sector, including rising interest rates affecting the financing environment for solar installations.
Samsung SDI – A Major Player in Battery Manufacturing
Samsung SDI, a major company within the Samsung Group, is one of the top global suppliers of lithium-ion rechargeable batteries. The company leverages its expertise in electronic materials to supply various components to Samsung Electronics, the world’s largest consumer electronics and memory manufacturer. Despite stagnating smartphone shipments, Samsung SDI expects steady revenue growth for small lithium-ion batteries and electronic materials due to the rollout of 5G technology. The company’s fair value estimate is KRW 700,500, implying a significant discount to its current trading price.
First Solar – A Leader in Thin-Film Solar Panel Technology
First Solar is the world leader in thin-film solar panel technology and has transitioned into a pure-play manufacturer of solar panels. The company’s key drivers of shareholder returns include shipment volume, average selling prices, gross margin, capital expenditures, and incentives. With its leading position in the U.S. and capacity expansion plans in the country and India, First Solar is poised for significant growth. Despite short-term market challenges, the company’s fair value estimate suggests it is trading at a discount.
Conclusion: While green technology stocks have faced a challenging year, some stocks within the Morningstar Global Emerging Green Technologies Select 30 Index offer value opportunities. Samsung SDI and First Solar, in particular, stand out as undervalued stocks with strong growth potential. As the market continues to fluctuate, investors should keep an eye on fair values and potential bargains within the green technology sector.
