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My Top Renewable-Energy Stock to Buy in August

By Matthew DiLallo – Aug 14, 2021 at 10:25AM

Key Points

  • Brookfield is increasingly becoming the partner of choice for companies that want to reduce their carbon footprint.
  • The company made excellent progress on its strategic initiatives during the second quarter.
  • Brookfield's success increases the probability it can generate high-end growth in the coming years.

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This giant is firing on all cylinders.

The global economy is slowly shifting toward cleaner energy sources. It's going to take decades and trillions of dollars of investment to make the switch. The size and scope of the energy transition make it a megatrend that investors won't want to miss.

While there are many companies helping drive the move toward alternatives like renewable energy, Brookfield Renewable (BEP 0.68%) (BEPC 3.99%) stands out as a clear industry leader. The company recently reported exceptional second-quarter results, which is why it sits at the top of my list as the best renewable energy stock to buy this August.

A person in a green field with wind turbines in the background.

Image source: Getty Images.

The partner of choice

One of the highlights of Brookfield's second-quarter results was the partnerships it developed with other companies to help them achieve their decarbonization plans. For example, the company signed a strategic collaboration agreement with e-commerce giant Amazon.com (AMZN 4.46%) to support new renewable energy projects. Amazon, the largest corporate buyer of renewable power, agreed to purchase additional electricity from Brookfield. That will support the construction of projects from Brookfield's 31-gigawatt (GW) global development pipeline. Meanwhile, the deal will help Amazon achieve its climate goals and transition the global electrical grid to greener energy sources. 

Brookfield also signed a collaboration agreement with Trane Technologies (TT 2.34%). The companies will jointly pursue distributed generation (e.g., rooftop solar and energy storage) and energy efficiency opportunities in North America. They plan to offer decarbonization-as-a-service by providing companies and other institutions solutions to decarbonize their operations by adding renewable energy and more energy-efficient systems to buildings. 

Finally, Brookfield agreed to invest alongside Apple's (AAPL 4.86%) China Renewable Energy Fund to acquire a 55% interest in a 213-megawatt (MW) portfolio of high-quality wind assets in China. That investment will help Apple and its suppliers in their aim to eliminate carbon from their operations in the country. 

These deals continued Brookfield's emergence as the partner of choice for companies seeking to improve their carbon footprint. For example, last year, Brookfield helped banking giant JPMorgan Chase (JPM 1.19%) power 90% of its banking operations in New York State with renewable energy. In addition, it partnered with Plug Power (PLUG 7.11%) to supply one of North America's first green hydrogen production facilities with renewable energy.  

An increasingly clear future

These partnerships enable Brookfield to secure power purchase agreements for its existing facilities and those it's working to develop. Those contracts provide stable cash flow, increasing the clarity of its long-term growth prospects.

The company believes it can organically grow its funds from operations (FFO) per share at a 6% to 11% annual rate through 2025, powered by:

  • Inflation escalation on existing contracts, which should add 1% to 2% to its bottom line each year. 
  • Margin enhancement initiatives, including signing new power purchase agreements at higher rates than expiring contracts, which could add 2% to 4% to its annual FFO. 
  • Investments in its development pipeline, which could boost FFO by another 3% to 5% per year. 

In addition, the company sees up to 9% of additional FFO per share growth as it makes new acquisitions. Add it up, and Brookfield could grow its FFO per share by as much as a 20% annual rate through 2025, almost double its growth rate over the last decade.

That higher-end result is increasingly more likely given all the company's success in securing collaboration agreements during the second quarter. The Amazon deal will help support more development projects, while the co-investment with Apple on an acquisition in China puts it a step closer to delivering high-end M&A growth. Meanwhile, the Trane deal can help improve margins as it could work with many of its existing distributed generation customers to further decarbonize their operations.

One of the brightest futures in the sector

Brookfield Renewable is quickly becoming the partner of choice for companies that want to decarbonize their business. It operates one of the world's largest renewable energy generating platforms at 21 GW and has one of the biggest development pipelines in the sector at 31 GW. It has the assets and expertise to help companies achieve their goals, which would enable it to grow briskly in the coming years. That upside potential makes it stand out as the top renewable energy stock to buy this August. 

 

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Matthew DiLallo owns shares of Apple, Brookfield Renewable Corporation Inc., and Brookfield Renewable Partners and has the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool owns shares of and recommends Amazon and Apple. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long March 2023 $120 calls on Apple, short January 2022 $1,940 calls on Amazon, and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Brookfield Renewable Partners Stock Quote
Brookfield Renewable Partners
BEP
$28.29 (0.68%) $0.19
Apple Stock Quote
Apple
AAPL
$148.03 (4.86%) $6.86
Amazon.com Stock Quote
Amazon.com
AMZN
$96.54 (4.46%) $4.12
JPMorgan Chase & Stock Quote
JPMorgan Chase &
JPM
$138.18 (1.19%) $1.62
Trane Technologies plc Stock Quote
Trane Technologies plc
TT
$178.42 (2.34%) $4.09
Plug Power Stock Quote
Plug Power
PLUG
$15.96 (7.11%) $1.06
Brookfield Renewable Stock Quote
Brookfield Renewable
BEPC
$32.61 (3.99%) $1.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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