The spike in oil prices that followed Russia’s invasion of Ukraine has led to calls on the U.S. to accelerate its shift to alternative energy. So it may be a good time to consider investing in alternative energy companies.
Bank of America analysts, led by strategist Stephen Suttmeier, listed several alternative energy stocks that should benefit from technical and fundamental factors.
The positive technicals include:
“1) Leadership from January/February lows relative to the S&P 500, as the 2022 U.S. equity market correction continues;
“2) Bullish reversal days … in late February;
“3) Improving price momentum as measured by the 14-day relative strength index on stocks with lower lows in February versus January; and
4) Bullish breakouts in [the] daily relative strength index. This suggests that positioning may be shifting from bearish to bullish … or that a catch-up trade for alternative energy [stocks] is in the offing.”
Buy Ratings, Strong Fundamentals
As for fundamentals, Bank of America selected stocks that earned buy ratings from analyst Julien Dumoulin-Smith.
The stocks with strong technicals and fundamentals are fuel-cell maker Bloom Energy (BE), solar-panel maker Maxeon Solar Technologies (MAXN) , diversified energy company NextEra Energy (NEE), solar energy company Sunnova Energy (NOVA), solar-product seller SolarEdge Technologies (SEDG), and solar-panel provider Sunrun (RUN).
As for Bloom, “We note a refreshed growth outlook from BE at recent fourth-quarter results, expecting 30% to 35% growth [annualized for the next 10 years], versus 25% to 30% previously,” Bank of America analysts said. That “reflects an incrementally stronger base of demand within power generation.”
Looking at Maxeon, “We see MAXN poised for outperformance in 2022, given the right exposures at the right time,” the analysts said. “European and specifically residential exposure should materialize as a key tailwind in 2022/23, with MAXN holding relationships with more than 900 installers in the European market.”
Turning to NextEra, “We view the [recent] weakness [of its stock price] as overdone and reiterate buy with the renewables/decarbonization opportunity set increasing, particularly with improved relative economics from the [price] increase in fossil commodities,” the B of A analysts said.
As for Sunnova, “In our view, a deeply discounted valuation, pricing power versus spiking utility rates and capacity to quickly pivot offerings both from a geographic and financing lens set up NOVA as [a] top pick in 2022,” the analysts said.
Looking at SolarEdge, “We see demand trends for SEDG as still in the early stages of a secular uptrend, with significant exposure to European residential and commercial power pricing [being] a key differentiator,” the BofA analysts said.
Turning to Sunrun, “Similar to NOVA, we emphasize RUN as holding significant pricing power in 2022 versus a baseline of rising utility rates,” the analysts said. “Price increases are indicated at more than 4% in 2022…”
