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🌦️ Deep Dive: Hedge Funds' Favorite Climate Change Stocks

There’s a billion dollar industry predicated on predicting the weather.

Happy Saturday to everyone on The Street.

The markets may be closed, but our finance-addled minds are still moving faster than a meme stock after a Roaring Kitty tweet.

So we’re pleased to launch the pilot edition of our new Saturday afternoon deep dive, in which we’ll double-click on a sector, metric, or other investing-related topic we feel isn’t getting the shine it deserves.

And speaking of shine, let’s (deep) dive into today’s issue.

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Fairweather Finance

Last year alone… 

  • 🚱 | A severe drought hit the Midwest, bringing soybean yields to their lowest level in more than three decades and driving a massive surge in the price of the omnipresent commodity.

  • 🌡️ | A record heatwave swept across Europe during peak tourist season, injuring travelers, upending vacation plans, and potentially leaving a permanent dent in future bookings.

  • 🏜 | And who can forget the 70,000+ festivalgoers trapped in the Nevada desert after heavy rain turned Burning Man into quicksand, burying the event’s typical $60 million influx into the local economy?

2023 had no shortage of examples of the economic impact of weather. Some estimates say nearly a third (~30%) of the U.S. economy depends on the weather.

As climate events grow in extremity, that percentage is likely to grow, too. But don’t take our word for it. There’s an entire industry predicated on, well, predicting it.

The Rise (and Shine) of Forecasting

Meteorologists don’t get much shine beyond a few five-minute slots on the evening news. In fact, forecasters catch more than their fair share of flack.

(Ever heard someone say, “I wish I could be right half the time and still get paid?” Every weatherman on the planet sure has.)

However, weather forecasting is a linchpin for decision-making, risk management, and resource allocation across countless industries: agriculture, tourism, live entertainment, travel, retail, construction, mining, and many more.

Meteorology has been around as long as we have. Its roots stretch back to rain-making rituals and Neolithic passage tombs designed to align with the sun’s path on the summer solstice.

But the weather industry came into its own in the 19th century, when technology like the telegraph and radar came along, bringing with them organized observation networks. By the mid-20th century, the rise of supercomputers had improved forecasts exponentially more.

Now, advanced algorithms and vast data sets provide historically accurate predictions for businesses like The Weather Company. Five-day forecasts are roughly as accurate today as three-day forecasts were two decades ago.

Weatherman jokes aside, the market and most Americans seem to recognize this substantial progress. Forecasting services comprise a $2 billion global market, and The Weather Company now ranks among the top 10 most-trusted U.S. brands, per a 2023 Morning Consult survey.

Cloudy With a Chance of Gains

Given the changing climate, rising temperatures, and increasingly extreme weather events across the planet, the meteorology industry faces unprecedented challenges in the years ahead. 

Atmospheric stability is notoriously unpredictable already, and these shifting patterns will only exacerbate that. On the other hand, climate change will likely just amplify the industry’s importance further. And emerging technologies like AI may be able to help meteorologists’ powers of prediction keep pace with it.

Despite being inextricably linked to many major industries, this sector is somewhat tricky to get exposure to. The majority of these organizations are privately held, like The Weather Company, or even federally owned, like the National Weather Service. However, investors aren’t without ways to play the meteorology space. 

For example, while the aforementioned eurozone heatwave dealt potentially irreparable damage to the tourism industry, it did wonders for certain retailers. Specifically, air conditioning product sales saw an historic surge. In July 2023, Amazon (AMZN) alone saw a more than 20% bump in AC sales year-over-year across Spain, Italy, and France.

TOGETHER WITH HIMS

Hims offers award-winning hair loss treatments that truly work. Available in a serum, spray, pill, or chew — whichever fits your routine.

You can trust that all Hims products are made with doctor-trusted, clinically proven ingredients. And the process is simple and 100% online.

Ready to find out what Hims can do for you? Complete their intake form and a medical provider will determine if treatment is right for you. If prescribed, your medication ships for free!

*Based on separate individual studies of topical and oral finasteride and minoxidil. Hair Hybrids are compounded products and have not been approved by the FDA. The FDA does not verify the safety or effectiveness of compounded drugs. Restrictions apply, see website for full details. Prescription products require an online consultation with a healthcare provider who will determine if a prescription is appropriate. **Actual price to customer will depend on product and subscription plan purchased.

Hedge Funds Favorite Climate Change Stocks

That’s probably why so many hedge funds have taken stakes in “climate change” stocks, or companies they believe will become indispensable in our in-flux future. These range from the obvious (and expensive) like Tesla (TSLA) and General Electric (GE) to not-quite household names like NextEra Energy (NEE), FirstSolar (FSLR), and Enphase Energy (ENPH), all of which are held by at least 40 major funds.

So the late, great Mac Miller might have been exercising his poetic license when he said, “Don’t ever gamble on the weather.” Forecasting services have proven there is serious profit in predicting weather patterns.

With a little extra dot-connecting, there may be profit for investors’ weather forecasts, too — so long as you can manage to be right at least half the time.

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