As the energy transition from fossil fuels to renewables continues, there are a proliferating number of listed climate tech companies working on decarbonizing the global economy.
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While they offer the excitement of cool tech and the growth potential of startups, they can also be risky. Energy investors may want to explore these companies, but they’re also going to want to include big names in their energy stock holdings.
In taking a look at some of the best energy stocks out there, this list includes promising smaller energy companies as well as large ones:
— NextEra Energy Inc. (ticker: NEE)
— RWE AG (OTC: RWEOY)
— First Solar Inc. (FSLR)
— Bloom Energy Corp. (BE)
— Gevo Inc. (GEVO)
— Aker Carbon Capture ASA (OTC: AKCCF)
— Spirax-Sarco Engineering PLC (OTC: SPXSY)
— Energy Transfer LP (ET)
NextEra Energy Inc. (NEE)
This stock is one that experts continually point to as a top renewable energy company. Its regulated utility segment engages primarily in the generation, transmission, distribution and sale of electric energy in Florida. Another segment produces electricity from renewable sources, including wind and solar. The company is also involved with green hydrogen, battery storage and nuclear plants.
NextEra takes second place in the holdings of the TrueShares Eagle Global Renewable Energy Income ETF (RNWZ), making up a 9.14% allocation in the small, actively managed fund that focuses on renewable energy infrastructure companies around the globe.
For renewable energy companies, “the major headwinds from 2023 are dissipating — rising interest rates/inflation, supply chain bottlenecks and clarity on incentives,” says Michael Cerasoli, portfolio manager of energy infrastructure strategies at Eagle Global Advisors.
RWE AG (OTC: RWEOY)
This German company, which is the top holding in Cerasoli’s fund, focuses on generating and trading electricity made with natural gas, wind, solar and hydro. It also trades natural gas and other commodities, as well as CO2 emission allowances.
From this year until 2030, the company plans to invest 55 billion euros ($60.1 billion) around the world in renewable energy, batteries, flexible generation and hydrogen projects, and it expects its green investment program to result in an average yearly boost to adjusted earnings before interest, taxes, depreciation and amortization of 14% this decade. RWE is targeting an annual dividend increase of 5% to 10% until 2030.
RWE quickly bulked up on solar and onshore wind investments in the U.S. last year with its $6.8 billion purchase of clean energy assets from Consolidated Edison Inc. (ED).
“RWE may have paid a high price (in) the U.S., but their timing and execution could get them an edge in this nascent market,” Cerasoli says.
First Solar Inc. (FSLR)
Solar and wind companies have been hit by inflation, which increases the costs of the materials they have to buy to build electric-generating farms, which can be quite large. Inflation also triggered rising interest rates, which make it more expensive for these companies to borrow money for the upfront costs of building solar and wind farms.
But even with the solar sector’s stock slump, the industry has continued with its contributions to the energy transition, with the Solar Energy Industries Association and Wood Mackenzie recently reporting that the U.S. is expected to have added a record 33 gigawatts of solar capacity in 2023.
“It’s worth noting that despite the issues energy transition has faced over the last two years, the result has been a mere slowdown of near-term projects” Cerasoli says. “The medium- and long-term trend has been toward more aggressive and ambitious energy transition targets” from Wall Street, government and the public.
First Solar’s stock has been on a rebound as slowing inflation has boosted expectations for both consumer demand and a shift toward potential interest rate reductions ahead.
Bloom Energy Corp. (BE)
Green hydrogen, which is made with renewable energy instead of fossil fuels, is an emerging industry with promise to help decarbonize hard-to-abate sectors like shipping and steelmaking.
It still has challenges, including high production costs, but these will likely be ironed out over time much like other, more established renewable technologies like solar and wind.
That gives companies with early-mover status an opportunity to scale up over the years or perhaps be bought up by larger energy companies wanting a quick entry into the green hydrogen sphere.
Bloom makes fuel cell power generation systems that can run on hydrogen, biogas and natural gas, and its technology can be adopted by the utilities and the transportation industries.
Daniel Goldman, a co-founder and managing partner at Clean Energy Ventures, a venture capital firm focused early-stage climate tech companies, thinks the green hydrogen industry will continue making strides this year.
“In the next 12 months, we will see the industry begin to lock in on the value of sustainable fuels, including green hydrogen, to decarbonize heavy industry and transportation,” he says.
Gevo Inc. (GEVO)
“Decarbonizing transportation, namely aviation, remains a critical area of interest for investors and has led to the rise of many companies and technologies reimagining aviation fuels,” Goldman says. “Companies that are committed to developing and commercializing sustainable aviation fuels will be sought after by investors and customers within the airline industry.”
Among other products, this Colorado-based Gevo makes aviation fuel from biomass, including starch byproduct from high-protein animal feed that the company also produces.
It is a small-cap stock with only a few quarters of gross profit under its belt. So it was a surprise when Gevo last year announced a $25 million buyback program.
“This stock repurchase program demonstrates the confidence that the board, management and I have in the future of Gevo in light of what we believe to be the considerably undervalued price of our common stock,” CEO Patrick Gruber said in a press release at the time.
It remains to be seen whether that optimism is borne out, but if it is, the company’s stock may be a bargain, as it is well below its initial price offering level after cost and technical challenges and periods of cheap oil, which competes against biofuels.
Recently, Zacks Equity Research upgraded the stock. “Fundamentally speaking, rising earnings estimates and the consequent rating upgrade for Gevo Inc. imply an improvement in the company’s underlying business,” the research firm said. “Investors should show their appreciation for this improving business trend by pushing the stock higher.”
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Aker Carbon Capture ASA (OTC: AKCCF)
Like green hydrogen, carbon capture technology is in its infancy and will need to prove itself, with cost being one of the key challenges. Carbon capture is where plants or technology remove carbon dioxide from the atmosphere.
“Hydrogen and carbon capture are in the early stages of development and will need more time to become economically competitive with other forms of energy,” says Rob Thummel, portfolio manager with Tortoise Capital Advisors.
But oil and gas companies with deep pockets are spending to expand into carbon capture, meaning it may become a more robust part of decarbonizing the global economy along with electrifying transportation, solar- and wind-generated energy, sustainable agricultural practices, low-carbon manufacturing, green construction and other climate-friendly solutions.
This pure-play carbon capture company was previously a unit of energy infrastructure company Aker Solutions ASA (OTC: AKRYY), which still owns a substantial portion of the company, giving Aker Carbon Capture a backstop that other climate tech companies may not have.
The company’s technology uses water and solvents to absorb carbon dioxide in a process that can be applied to emissions from gas, coal, and cement industries and refineries.
The technology has been offered commercially since 2009, giving Aker Carbon Capture an important foothold in a developing industry that is set to become more important as time goes by.
Spirax-Sarco Engineering PLC (OTC: SPXSY)
David Souccar, portfolio manager and senior research analyst at Vontobel Asset Management, says the best investments in the energy transition are not the obvious ones like renewables and electric cars.
One of his picks is Spirax-Sarco Engineering, a U.K.-based multinational engineering group involved in commercial steam systems, advanced electric thermal solutions, pumps and fluid path equipment.
In addition to the pharmaceutical and biotech industry, the food and beverage sector, and chemicals companies, Spirax-Sarco also serves the oil and gas industry and the power-generation sector.
Its products help reduce energy use during oil and gas production and distribute and reuse waste heat formed during the generation of electricity.
Energy Transfer LP (ET)
Natural gas is a bridge fuel that is expected to play a significant role in transitioning the world’s economy away from coal for electricity generation.
Energy Transfer is a pipeline company that focuses on transporting, storing and terminaling natural gas, natural gas liquids, liquid natural gas, crude oil and refined products.
For fixed-income investors looking to boost income if interest rates fall next year, Energy Transfer’s dividend yield of nearly 9%, as of its Jan. 8 close, could be attractive, says Thummel.
“Energy Transfer’s business is a diversified set of critical energy infrastructure that benefits from a growing economy, higher population and increased demand for U.S. energy exports,” he says. “Where can you find a stock with an investment-grade debt rating and a 9% dividend yield? It’s called Energy Transfer.”
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8 Best Energy Stocks to Buy in 2024 originally appeared on usnews.com
Update 01/09/24: This story was published at an earlier date and has been updated with new information.
