Choosing the best renewable energy stocks requires an investor to compile a composite picture of companies by evaluating their business models and selecting the stocks with the best overall market position. The particular type of technology on which a given firm focuses is significant, as some technologies have less potential for explosive growth even though they may be closer to market or have steadier overall rates of return on investment. The geographic area in which a firm operates should also considered, as the profitability of companies dealing in renewable energy is often contingent on the sorts of subsidies and price supports that they receive. An investor looking to find the best renewable energy stocks should also consider the fundamentals of the companies they are considering.
Many different renewable energy technologies are in production and development, and each offers a particular level of risk and reward. Identifying the next big technology can be difficult, but if an investor is confident in his analysis, he can reap great rewards. Older, established technologies, such as wind or solar power, offer less opportunity for an investor to capitalize on a sudden increase in stock price as a new technology takes off but are likely to provide more predictable rates of return on investment over the medium or long term. Identifying firms with solid production models or a good record of incremental improvement in existing technologies can aid an investor in identifying which established renewable energy stocks to choose.
Renewable energy stocks are closely linked to national energy policies. Corn-based ethanol in the United States has historically been profitable mostly because of subsidies to encourage its development and use. The long-term performance of stocks linked to this technology will probably depend on future subsidies.
Countries which have made a conscious effort to invest in renewable energy over the course of many years may offer the most dependable business environment for companies in this field and the best value in renewable energy stocks. China and Germany have both directed large subsidies toward the implementation of wind energy and solar energy programs, and firms doing business in these countries benefit from these policies. Similarly, Brazil has strongly favored its domestic sugar cane ethanol industry.
When investing in renewable energy stocks, the same general rules should be observed that are used when selecting any other stocks. The quality of the management team should be considered and the level of debt and assets held by a corporation should be evaluated. The current price of the stock is important as well, since even a firm with an excellent business model will probably not be a good investment if its stock is currently overvalued.