The stock picks are all companies that can benefit from the large long-term risks in the global market. The big risks were listed as climate change, water scarcity, vast urban waste, food insecurity, public heath burdens, economic inequality, and demographic cliffs. These risks are uncertain in their timing and scope. Generally, there is no single government or organization responsible, although some are more easily dealt with on a national level, such as demographic cliffs and income inequality.
The top five picks were Sun Edison, Cubist Pharmaceuticals, Tesla Motors, Whole Foods Market, and Chart Industries. The ideas around the sustainability themes came from Morgan Stanley’s equity research analysts. Each company had to meet a host of criteria. First, they needed to have positive outlook for stock returns and each one is rated as an “overweight”. Morgan Stanley defines that as a stock that will outperform the industry average over the next 12-18 months on a risk adjusted basis. In addition, the stocks all must have at least 10% upside to the share price and have a market cap over $2 billion.
Here is a quick look at each of these stocks and why they could be ideas to look at for your portfolio.
SunEdison (NASDAQ: SUNE) is a solar power company operating in the U.S.
It recently spun off its semiconductor and YieldCo segments through IPOs to reorganize operations around solar. Its increasing exposure to rooftop solar (residential) is attractive and its overall growth is expected to outpace the market. The outlook for the U.S. solar market is for steady demand and stable pricing. It is adding additional MW in over the next few years and has the ability to add more to further grow the business. In rooftop, it is expected by analysts that management will roll out a more aggressive strategy into this market.
Cubist Pharma (NASDAQ: CBST) is a bio-pharmaceutical company that develops products for emergency rooms and acute care facilities. Its focus is on the research, commercialization, and creation of products that meet needs in the acute care environment, largely antibiotics.
The company’s leading product is Cubicin, the top-selling antibiotic in the US. It launched Sivextro used in the outpatient treatment of MRSA in June. It is also expected to launch ceftolozane/tazobactam for the treatment of Gram-negative infections in the next two years. The need for new antibiotics is there and if Cubist can continue to identify growth markets and develop treatments for them, it can have sustained success beyond these drugs.
Tesla Motors (NASDAQ – TSLA) continue to grow both domestically and in the international market. It is the only sizeable auto company that exclusively manufactures electric vehicles. It is the most direct and only pure play stock on this market.
It has new models planned for release in the domestic market and is pushing into China, a potentially huge market. Tesla has succeeded so far in reducing the cost of its vehicles, but it still has a way to go before it can sell to the mass market. The upside is there and both the near and long-term outlooks are positive for electric vehicles.
Whole Foods Markets
Whole Foods (NYSE: WFM) is a national grocery store and premium retailer that provides organic, natural, and sustainable foods. Organic and natural are the two fastest growing portions of not only the food market but among consumer staples. It has plans to add another 116 stores that would increase its square footage by 30%. The concerns around food quality and initiatives towards a more natural diet should continue to benefit Whole Foods into the future and result in above average long-term growth. In the near-term, its new store plans and positive fundamentals are good for shareholders.
Chart Industries (NASDAQ: GTLS), based in Cleveland, is a global manufacturer of engineered equipment used in the production, storage, and end-use of hydrocarbon and industrial gasses.
The development of oil & gas shale projects in the U.S. and build out of the natural gas infrastructure in China both benefitted Chart over recent years. While it has had some rough quarters, the outlook for end market fundamentals is positive. The China market, which slowed late last year, should accelerate again leading to backlog growth at Chart. In addition, the LNG market is expected to continue to expand in both the domestic market and globally for some time. Chart should benefit from the infrastructure build out in multiple areas related to naturals gas, including trucking, marine, rail, base-load, and mid-scale.
Each of these stocks has positive near-term fundamentals along with a long-term secular trend that is a play on the global issues related to sustainability.
These are by no means companies to buy and forget about, since some have a fair amount of cyclical risk associated with them. However, they are stocks that can do well for a prolonged period for investors.
Do you plan on investing in any of these global sustainability stocks?
John has seven years of experience as an equity analyst following various stocks and sectors. As a senior equity analyst, he received awards from the Wall Street Journal and Financial Times for his writing.