Investors that want environmental, social, and corporate governance (ESG) exposure are getting fleeced by the Wall Street marketing machine.
That’s because exchange-traded funds (ETFs) that market themselves as ESG are simply packing their portfolios with large-cap names. Ultimately, they provide the exact same returns as the S&P 500.
The sad part is that real ESG is where investors will find outsized returns over the next decade.
That’s because the next stage in our human development will be improving all the advancements of the last 100 years.
It’s already visible, but not fully tangible just yet. However, one company has just taken a step towards getting us there…
ESG ETFs like the iShares ESG Aware ETF (ESGU) wouldn’t dare to include real ESG names.
That’s because the companies that are leading the charge in this space are naturally volatile, and prone to the hype lifecycle. And volatility is not good for marketing.
As a reminder, a hype lifecycle is simply a boom-and-bust cycle perpetuated by social media and chat rooms.
The good thing is that we can identify where we are in this cycle by knowing when it’s time to sell, and more importantly, when it’s time to buy.
A classic example of this is Plug Power (PLUG)…
We here at Market Minute recommended buying this name back in May when it was trading at $27. It’s now over $40 – a 49% gain.
And the reason was simple: we identified PLUG to be at the bottom of its hype lifecycle – when everyone starts piling on about how bad it is.
But then we realized something…
PLUG had the cash for management to execute its vision: making clean hydrogen power mainstream. But to actually do that, it chose to partner with well-established global players.
And it’s also how these companies are going to propel the world into a futuristic landscape where we create less than we destroy….
The first step is partnering with bigger players to get their products into the mainstream.
One company that fits all of these criteria is Gevo (GEVO).
It’s a $1.5 billion renewable fuels technology company that makes jet fuel from materials like sugar cane, molasses, agricultural residues, and waste. It’s called sustainable aviation fuel (SAF), and it’s incredibly in demand right now.
The fuel works seamlessly… without needing to modify existing fossil fuel-based engines, supply chains, and storage infrastructure.
Right now, about one third of its market cap is cash. That much cash relative to its entire market cap does two things: it places a floor on its stock price, and it gives it the capital to execute.
This was also part of the blueprint when we recommended PLUG.
And that excess cash is part of what I look for on the balance sheet of high-growth companies.
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Cash Plus Vision Equals Execution…
Since then, PLUG has partnered with Phillips 66, Renault, and Lhyfe.
It’s the best form of marketing money can buy.
GEVO just passed this test as well. It recently partnered with a commodity-themed favorite of mine, Archer-Daniels-Midland (ADM).
Here’s a headline from Airline Economics that sums it up:
ADM, GEVO SIGN MoU (memorandum of understanding) TO PRODUCE UP TO 500 MILLION GALLONS OF SUSTAINABLE AVIATION FUEL
ADM will leverage GEVO’s processing technology and capabilities to process its ethanol and set both companies at the forefront of an enormous trend… the accelerating demand for sustainable aviation fuel (SAF).
The U.S. and Europe will require almost four billion gallons of SAF production by 2030, which will accelerate to 45 billion gallons by 2050.
CEO Patrick Gruber even stated, “Our potential customer pipeline has grown to over one billion gallons.” At about $3.50/gallon, that revenue pipeline alone means that GEVO needs to more than double.
And here’s a chart of GEVO…
At the top is the analyst price band, with the high estimates (green line) and the low estimates (red line). On the bottom is the number of times GEVO was mentioned on Twitter.
You can see in February GEVO had almost 10,000 mentions a day. That’s not when you buy…
But at $7.50 a share, it’s well worth a shot right now. And analyst expectations tell me I’m not the only one who thinks so… The lowest estimate alone pencils in an 85% gain.
But once a player like ADM gets onboard, it legitimizes the company. So, I expect more announcements like this one from GEVO in the next 6-12 months just like we’re seeing with Plug.
It’s a great sign that management – the ultimate driver of stock returns – is delivering shareholder value.
Regards,
Eric Shamilov
Contributing Editor, Market Minute
Reader Mailbag
What do you think of ESG? How do you sidestep the hype in this sector? Do you agree that ETFs provide “real” ESG returns?
Let us know your thoughts – and any questions you have – at feedback@jeffclarktrader.com.