• Environmental awareness is increasing
• Clean energy stocks have suffered setbacks recently
• Morgan Stanley, BNP and BMO Capital Markets are optimistic
Averting a climate catastrophe is one of the most important challenges of our time. In the meantime, politicians have also become aware of this, and so the world’s largest economies have made the goal of climate neutrality a priority. In order to achieve this, the energy transition – the switch to cleaner energy sources – seems essential. Therefore, the focus is on companies that provide innovative technologies in the fields of clean energy production and use (wind/solar, biofuels, hydropower and other renewable energy sources), energy saving, energy efficiency and renewable energy promotion.
Clean energy stocks plummet
However, despite the great interest in this sector, it has performed very poorly in recent months. As “Bloomberg” reports, for example, the S&P Global Clean Energy Index has lost 8.2 percent since the beginning of the year and even 39 percent since its peak at the beginning of last year (as of January 19, 2022).
The reasons for this are manifold: Concerns about rising interest rates in the USA, a possible reduction in subsidies for solar systems in California, the stock market rotation away from high-growth tech stocks and the difficulties of US President Joe Biden in enforcing them have had a dampening effect its multi-billion dollar “Build Back Better” infrastructure reform.
Analysts optimistic
According to “Bloomberg”, however, numerous analysts still see good future prospects for the sector. Morgan Stanley, for example, upgraded its assessment of the clean energy industry from originally “in-line” to now “attractive” citing strong growth. The US investment bank said it prefers stocks in companies that have strong barriers to the market and that are priced in for little growth. This applies to AES, Plug Power, Sunrun and TPI Composites, for example. After the weak performance in 2021, the time is now right to selectively buy shares from the clean energy sector.
Analysts from the French bank BNP Paribas also recommend investing in renewable energies, and in particular in integrated companies, as they are better secured, diversified and balanced. For example, the shares of EDP Renovaveis SA were rated “outperform” and Scatec ASA was also given a positive rating. BNP analysts believe that investors should stay away from smaller companies in the renewable energy sector.
The analysts at BMO Capital Markets are also optimistic. While it is difficult to say if the bottom has been reached, the growth potential of the clean energy industry remains robust, renewable energy is still competitive in terms of cost and demand remains strong. That is why the analysts for Boralex and Innergex Renewable Energy remain positive and for Brookfield Renewable Partners and Northland Power the ratings have even been raised from “market perform” to “outperform”.
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