When many investors think of energy stocks, they think of traditional energy firms engaged in the exploration and production of coal, natural gas and oil. As more folks, investors included, have become eco-friendly, investing in alternative energy companies has grown in popularity. One sub-sector of the alternative energy group is wind energy stocks.
Increase in Wind Industry Production
Wind power has at least two primary advantages over fossil fuels: It is free and environmentally safe to capture. Those might be two of the reasons wind power production has increased in the United States. In 10 years, the production of wind power in the United States increased from approximately 6 billion killowatthours (kWh) in 2000 to 275 billion kWh in 2018.
Wind Energy Investment Projections
A glance at the wind-production statistic above may be enough to whet any investor's curiosity for considering wind industry stocks. In 2017, four states produced more than 30 percent of their energy needs from the wind alone – Iowa, Kansas, Oklahoma and South Dakota. The U.S. Department of Energy projects that the wind industry's project growth will nearly double from 113 gigawatts (GW) across 36 states in 2020 to 224 GW across 47 states in 2030.
Investing in Turbine Producers
Increased production of wind power increases the investment potential of turbine makers. Wind turbines, also called wind energy converters, are the engines that harness the wind's kinetic energy and convert it to electrical energy. Wind turbine producers are the companies that make these engines. These producers can benefit from increased installations, higher research and development spending.
Investing in Industrial Producers
One way conservative investors can access the wind energy sector without making an "all in" bet on the group is through shares of industrial conglomerates. Several of the major industrial conglomerates such as General Electric, Honeywell and Germany’s Siemens make components and parts used by wind power firms. However, these companies have diverse business lines and are not heavily dependent upon wind power as a primary driver of revenue of profits. That means investors can get some exposure to wind energy without being too vulnerable in the event of an industry collapse.
Investing in Small-Cap Funds
Another way for investors to hedge their bets while still gaining some exposure to wind energy names is to access the group through small-cap funds. Even some of the more prominent wind energy names are considered small-cap stocks (those with market values of $2 billion or less). Those names, along with others from other industries, can be accessed through small-cap funds.
Investing in Exchange Traded Funds
Exchange traded funds, or ETFs, represent perhaps the best way for investors to gain exposure to wind energy names without the burden of having to select individual stocks. Wind energy ETFs offer another advantage in that they offer investors a chance to invest in shares of foreign wind power firms that are not listed in the United States. The largest wind energy ETFs are heavy on stocks that, at the sector level, are designated as industrials or utilities.
Todd Shriber is a financial writer who started covering financial markets in 2000. He worked for three years with Bloomberg News and specializes in analysis of stocks, sectors and exchange-traded funds. Shriber has a Bachelor of Science in broadcast journalism from Texas Christian University.