Climate related investments

[mattee2264]

Grantham bearish as usual on the US stock market but sees good opportunities in climate related investments 

https://www.gmo.com/europe/research-library/the-great-paradox-of-the-u.s.-market_viewpoints

 

"Climate-related investments: With increasing climate damage and the increasing willingness of governments to take action, I believe climate investments will have top-line revenue growth that is guaranteed to be above average for the next many decades, although with no guarantees as to the smoothness of that growth. But, with all the cost of solar, wind, etc. being up front and little of the cost being operational, climate investments are exceptionally discount rate-sensitive, which has hammered them over the past two and a half years. And in its usual way, the market has overreacted to the trend of rising rates, making these investments real bargains today. Today, solar stocks are priced at over a 50% discount to the broad equity market, and some of the best clean energy companies in the world trade at levels that imply negative real growth"

 

Anything climate related bubbled up in the aftermath of the pandemic and then got killed when interest rates rose. But therein perhaps lies the opportunity. Especially as market

attention has switched to anything AI related and cryptos are back in favour. 

 

Of course renewables have always struggled to stand up on their own two feet without subsidies and other government grants and the energy transition isn't going to happen overnight which doesn't jive well with investors increasingly short time horizons. But over the long term we are going to have to get a much higher share of our energy from renewables.

 

https://www.ishares.com/us/products/239738/ishares-global-clean-energy-etf seems a know-nothing investor way to play this theme. And the chart below shows that its price has returned to pre-pandemic levels irrespective of the fact that ESG reporting is becoming a way bigger deal and climate change is being taken increasingly serious. 

But interested if anyone on here has any specific names they favour. 

 

 

[Luca]

2 minutes ago, mattee2264 said:

Grantham bearish as usual on the US stock market but sees good opportunities in climate related investments 

https://www.gmo.com/europe/research-library/the-great-paradox-of-the-u.s.-market_viewpoints

 

"Climate-related investments: With increasing climate damage and the increasing willingness of governments to take action, I believe climate investments will have top-line revenue growth that is guaranteed to be above average for the next many decades, although with no guarantees as to the smoothness of that growth. But, with all the cost of solar, wind, etc. being up front and little of the cost being operational, climate investments are exceptionally discount rate-sensitive, which has hammered them over the past two and a half years. And in its usual way, the market has overreacted to the trend of rising rates, making these investments real bargains today. Today, solar stocks are priced at over a 50% discount to the broad equity market, and some of the best clean energy companies in the world trade at levels that imply negative real growth"

 

Anything climate related bubbled up in the aftermath of the pandemic and then got killed when interest rates rose. But therein perhaps lies the opportunity. Especially as market

attention has switched to anything AI related and cryptos are back in favour. 

 

Of course renewables have always struggled to stand up on their own two feet without subsidies and other government grants and the energy transition isn't going to happen overnight which doesn't jive well with investors increasingly short time horizons. But over the long term we are going to have to get a much higher share of our energy from renewables.

 

https://www.ishares.com/us/products/239738/ishares-global-clean-energy-etf seems a know-nothing investor way to play this theme. And the chart below shows that its price has returned to pre-pandemic levels irrespective of the fact that ESG reporting is becoming a way bigger deal and climate change is being taken increasingly serious. 

But interested if anyone on here has any specific names they favour. 

 

 

ETF trading at 17x earnings, 2% yield and 1.7x book. 40x earnings in 2021 was probably a bit much also due to war, supply chains etc., but this could look more interesting from here indeed. 

[Spekulatius]

The climate related investment I like the best is HVAC. Many tailwinds here with respect to regulation (requires more environmentally refrigerants, better efficient, switch to heat pumps) as well as the increasing temperature 

s especially in heat island cities requiring more HVAC use. It’s a story that seems to have legs for decades to come. That said, most stocks are not cheap, but I did buy some JCI recently at a decent valuation and look at others as well.

[RadMan24]

3 hours ago, Spekulatius said:

The climate related investment I like the best is HVAC. Many tailwinds here with respect to regulation (requires more environmentally refrigerants, better efficient, switch to heat pumps) as well as the increasing temperature 

s especially in heat island cities requiring more HVAC use. It’s a story that seems to have legs for decades to come. That said, most stocks are not cheap, but I did buy some JCI recently at a decent valuation and look at others as well.

Thematically, sure yes, the best mitigator to the most likely result of global warming is extended heat days and any sort of sane government action will be to incentivize high efficient HVACs, especially in areas that may not have ever thought they would need HVACs (or simple ACs), like Maine. 

[lnofeisone]

14 hours ago, Spekulatius said:

The climate related investment I like the best is HVAC. Many tailwinds here with respect to regulation (requires more environmentally refrigerants, better efficient, switch to heat pumps) as well as the increasing temperature 

s especially in heat island cities requiring more HVAC use. It’s a story that seems to have legs for decades to come. That said, most stocks are not cheap, but I did buy some JCI recently at a decent valuation and look at others as well.

I like JCI and I've held for AOS (full position) and LII (starter position). AOS can get volatile but the business is steady. 

[ValueArb]

No surprise but ESG outperformance studies were flawed and confused causality.

 

https://www.bloomberg.com/news/articles/2024-03-11/esg-investing-studies-are-flawed-reports-say?cmpid=BBD031224_MONEYSTUFF&utm_medium=email&utm_source=newsletter&utm_term=240312&utm_campaign=moneystuff

[Eldad]

Grantham also says things like “Maybe with the power of AI we have an outside chance to solve the coming climate Armageddon before it is too late.” Not really a person to be taken seriously IMO. Old rich man that has moved on from making money being his sole focus to focusing on his climate obsession. 
 

Nibe industrier is almost never cheap, but is relatively cheap now. If you like the space. 

[vinod1]

I have been reading Grantham since 2001. Except for calling for Value, Small Value, International and Emerging markets in 2000-2001 time frame and standing up to buy at 2009 bottom, he has been dead wrong on every single thing.

 

What happened to mean reversion? "If corporate profit margins are not mean reverting then capitalism is dead", "profit margins are the most mean reverting of all economic data", etc. Mean reversion in PE? 

 

He has been Malthusian for quite a while. Not even a refinement of that. I mean it is good to care about climate but can he not do it in at least an intelligent way?

 

Yes there are finite quantities of many resources, but technology keeps improving and we are able to extract more. Sure at some point we may run out, but it can be 20, 200 or 2000 years from now. There is no convincing argument being made why current time is when we are running out of resources. 

 

He is just mentally not fit anymore.

 

Vinod

[rohitc99]

if you read the book : The Beginning of Infinity: Explanations That Transform the World, it just shows why all these malthusians have been wrong. Its a great book and in the begining chapter itself, david makes a great argument, there is no shortage of any resource as such. its all a matter of knowledge

 

[Eldad]

14 minutes ago, vinod1 said:

I have been reading Grantham since 2001. Except for calling for Value, Small Value, International and Emerging markets in 2000-2001 time frame and standing up to buy at 2009 bottom, he has been dead wrong on every single thing.

 

What happened to mean reversion? "If corporate profit margins are not mean reverting then capitalism is dead", "profit margins are the most mean reverting of all economic data", etc. Mean reversion in PE? 

 

He has been Malthusian for quite a while. Not even a refinement of that. I mean it is good to care about climate but can he not do it in at least an intelligent way?

 

Yes there are finite quantities of many resources, but technology keeps improving and we are able to extract more. Sure at some point we may run out, but it can be 20, 200 or 2000 years from now. There is no convincing argument being made why current time is when we are running out of resources. 

 

He is just mentally not fit anymore.

 

Vinod

Agree. These guys start as capitalists: decentralization and markets are the best at solving problems. 
 

Then they become billionaires and start going to Davos and think they are smart and the world is dumb and top down central planning is the only way. 
 

It is especially troubling when most of his wealth likely comes from fees from his fund. His clients likely would have been better off indexing. Which makes him more of a con-artist than a smart guy. 
 

This change in mindset from most billionaires makes Warren Buffett an even more impressive individual IMO as he has resisted it. 

[vinod1]

6 minutes ago, rohitc99 said:

if you read the book : The Beginning of Infinity: Explanations That Transform the World, it just shows why all these malthusians have been wrong. Its a great book and in the begining chapter itself, david makes a great argument, there is no shortage of any resource as such. its all a matter of knowledge

 

 

Thanks for the recommendation. Ordered it.

[lnofeisone]

17 hours ago, ValueArb said:

No surprise but ESG outperformance studies were flawed and confused causality.

 

https://www.bloomberg.com/news/articles/2024-03-11/esg-investing-studies-are-flawed-reports-say?cmpid=BBD031224_MONEYSTUFF&utm_medium=email&utm_source=newsletter&utm_term=240312&utm_campaign=moneystuff

No surprise indeed. Lots of capital got burned up because of these studies. It what makes the market. 

[Saluki]

https://finance.yahoo.com/news/panama-canal-drought-could-threaten-202842044.html

 

It seems that containerships, which are probably overbuilt already, are going to pay higher rates to use the Panama canal because their cargo is more valuable and they can eat the cost.  I've always hated bulk carriers, but there are a lot more of them carrying low value cargo that doesn't warrant paying for passage through Panama.  I wonder if it's worth it to start looking at some of these companies again. 

[james22]

On 3/12/2024 at 9:09 PM, Eldad said:

Agree.

 

Agree.

[Eldad]

1 hour ago, james22 said:

 

Agree.

Haha the only thing you agree with in my deranged diatribe is “Agree”

[james22]

6 hours ago, Eldad said:

Haha the only thing you agree with in my deranged diatribe is “Agree”

 

Ha, no I agree with it all (and ValueArb, Eldad, vinod1, and rohitc99's posts as well).

[james22]

On 3/12/2024 at 9:02 PM, rohitc99 said:

if you read the book : The Beginning of Infinity: Explanations That Transform the World, it just shows why all these malthusians have been wrong. Its a great book and in the begining chapter itself, david makes a great argument, there is no shortage of any resource as such. its all a matter of knowledge

 

Thanks for the recommendation. Just arrived and it's in the line-up.

 

Post a review in the Book forum?

[rohitc99]

4 hours ago, james22 said:

 

Thanks for the recommendation. Just arrived and it's in the line-up.

 

Post a review in the Book forum?

 i can try, but its a really dense book and cant speak for others, but i have been barely able to get 30-40% of the book till now. i will have re-read it a few times

 

other book by the same author which is in my list is fabric of reality

[fareastwarriors]

Carrier, the century-old inventor of the air conditioner, is moving on to the home heat pump