3 Stocks for COP26 and Beyond

VIDEO: Killik & Co's Rachel Winter talks UK editor Ollie Smith through three stocks that will play a crucial role in delivering promises made at COP26

Ollie Smith 4 November, 2021 | 10:57AM
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Ollie Smith: Welcome to another "Morningstar 3 Stock Picks" video. I'm Ollie Smith and with me is Rachel Winter, Associate Investment Director at Killik & Co.

Rachel, COP26 is rumbling on in Glasgow. So, where are we starting with your picks today?

Rachel Winter: Well, we thought we'd have a look at three stocks with a bit of a green slant this week. So, we'll start with Ørsted, which is a Danish wind farm company. It's actually the global leader in offshore wind. And just to give you give you an idea of the massive opportunity for Ørsted – at the moment, the company has a generation capacity of about 7 gigawatts. And between 2025 and 2030, it's likely that the world is going to need to build a further 20 gigawatts per year of additional wind farm capacity. So, the opportunity here is huge. We believe Ørsted is the global leader with the most skilled management team. And actually, over the last few months the share price has come down a lot for two different reasons. One is the competition in this space and the other is the fact that wind speeds have been a bit slower than usual this year. We're not worried about those two issues. We still think Ørsted is the best-in-class, and we think the wind speed issue is temporary. So, we are taking this share price weakness as a buying opportunity.

Smith: Interesting. And onto stock number two. What have you got for us?

Winter: Stock two is actually Royal Dutch Shell, which clearly is a fossil fuel company. Many people will view companies like Shell as the cause of the carbon emissions problem we have at the moment. But we do believe they should be part of the solution as well. Shell at the moment does have a huge input into natural gas that is part of this solution because lots of developing countries around the world at the moment are still very dependent on coal. They're not going to be switching to renewables in the near future. We believe they need to use gas as an interim measure and gas has a much cleaner burn than coal. So, Shell is a big leader in that space. And additionally, Shell is investing heavily in renewable fuels such as wind power and also hydrogen. Obviously, Shell is going to be very volatile in the near term as we move away from fossil fuels, and at the moment, we believe it's appropriate to invest up to about 3% of growth portfolios into fossil fuels.

Smith: Just regarding Shell and the activist investor story from last week. How likely is it that an activist investor like the one featured could actually split the company in two into the good bit, so to speak and the bad bit, so to speak? It's easier said than done, surely?

Winter: It's much easier said than done. This would be incredibly complex to do, and my opinion is that Shell needs the revenues from the so-called bad bit in order to invest in the good bit. So, actually, I disagree that the company should be broken up, and I think it would be an incredibly complex transaction.

Smith: And then, finally, onto stock pick number three.

Winter: Stock three is Ecolab which calls itself a global leader in water and hygiene. To become greener the world will need to use less power and less water. And what Ecolab does is it produces cleaning products which allow the users to use less heat and less water. For example, it's a big supplier to the leisure and hospitality industry. So, it's supplying the cleaning products for laundry and hotels and for all the cutlery and crockery in bars and restaurants. So, it does help these providers to not only to use less power and less water, but also to cut their costs as well, because they are then needing to spend less on heat and water. So, it's an environmentally friendly company for many ways, and we do think the future opportunity here is massive, particularly as the economy starts to reopen and all these bars and restaurants and hotels start to get more business once again.

Smith: Okay. Rachel, thanks so much for taking the time to speak to me today. For Morningstar, I've been Ollie Smith.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Ecolab Inc233.66 USD0.44Rating
Orsted A/S419.50 DKK-2.98Rating
Shell PLC ADR (Representing - Ordinary Shares)71.92 USD0.25Rating

About Author

Ollie Smith

Ollie Smith  is editor of Morningstar UK

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