The world is going through a major energy revolution. Renewable energy, such as solar and wind power, is becoming more popular. In addition, many countries have committed to phasing out coal as a source of energy. They’ve also pledged to reduce the use of oil and gas fossil fuels. To do this, there needs to be reliable storage for renewable energy. For example, if the sun isn’t shining or the wind isn’t blowing, a battery can store this excess power until it can be used later. To help you make an informed decision about which stocks might perform well in this sector in 2021, here are some energy storage stocks you should consider in 2021.
The Energy Storage Revolution
In the past decade, renewables have been growing at a faster rate than conventional sources of energy. In particular, solar and wind power have made impressive progress. In particular, the International Energy Agency (IEA) reported that in 2016, a record 23 countries were meeting or exceeding their fossil fuel energy demands through renewable energy.
Solar power, particularly, has grown dramatically. According to the IEA, in 2016, solar energy accounted for the largest share of the net increase in global electricity generation over the last four years. This growth has also resulted in a decline in the price of solar power installations.
Over the past several years, the concept of energy storage has become much more mainstream. That’s thanks to several breakthroughs that made it possible to harvest energy from renewable sources. The first generation of energy storage devices was giant batteries made from lead-acid, sodium, and lithium. These batteries were created to charge and discharge in a matter of hours. These devices served an essential purpose, but not one that served the world’s needs. This is because they require a constant source of energy, which is hard to come by.
The second generation of energy storage devices came with ultracapacitors. These batteries allow power to be harvested on a moment-to-moment basis.
Energy Storage Stocks on the Rise
Most of these stocks are focused on the energy storage market. However, they’re not the only ones that might perform well. Companies that produce renewables themselves are also expected to do well in this industry.
For example, EDP Renovaveis SA (ADR) (NYSE: EDPR ) produces wind turbines. It is also involved in the transmission and distribution of electricity and water. Therefore, it should benefit from the growing demand for electricity and water in Brazil and the rest of Latin America.
Another company that produces renewable energy is NextEra Energy Partners LP (NYSE: NEP ). NextEra Energy, Inc. (NYSE: NEE ) is a Florida-based utility that owns an electric generation, transmission, and distribution business.
Top energy storage stocks according to Bank of America
Oil prices rose on Friday, adding to a recent rally that has taken the commodity to multi-year highs. West Texas Intermediate crude futures in the United States settled above $83 per barrel on Wednesday, the highest level since 2014. Brent crude futures settled above $85 per barrel that day, marking their highest level since 2018.
“Higher oil used to be a benefit for the S&P500… but it is different this time”. 22 note. “We anticipate that the benefits of higher oil prices will be far less than they were previously.”
According to the bank’s analysis, oil beneficiaries accounted for more than 20% of total S&P500 earnings from 2011 to 2014, when oil was last trading above $100 per barrel. According to the bank, they now account for 6% of the total.
“As the energy market remains tight, we remain bullish on the Energy sector while underweighting Consumer sectors (both Consumer Discretionary and Staples),” Subramanian said. “How to Invest: Purchase Energy, Sell Consumer.”
Buy energy stocks
Bank of America screened for energy companies with the highest positive correlation to WTI oil in the past, excluding stocks rated underperform by the firm’s analysts. According to this analysis, energy companies are the best stocks to invest in.
Schlumberger has the highest correlation to WTI crude on the list, with a 47.7 percent correlation. The company works in the oilfield services industry.
Hess, an energy exploration and projection company, comes in second with a correlation of 45.9 percent.
Halliburton is the third name on the bank’s list, with a 44.2 percent correlation. Halliburton, like Schlumberger, is an oil field service company.
Marathon Oil and Pioneer Natural Resources round out the list.
To sell, consumer stocks
Higher gas prices cause consumers to spend more money on gas, leaving less money for other purchases. According to Bank of America, this is why consumer companies suffer the most when oil prices rise.
“The United States consumer has not seen this magnitude of an oil hit in ten years, and fuel costs as a percentage of wallet will rise further as the world re-opens,” Subramanian said.
BOFA screened for consumer companies with the highest negative correlation to WTI oil — that is, as the price of oil rises, the price of the company’s shares falls.
According to Bank of America’s analysis, the share price of General Mills is most inversely related to oil prices. WTI oil has a 22% negative correlation with the food company.
Clorox Company, a consumer products company, is next on the list. The company is negatively correlated with oil prices by 20.5 percent.
Higher oil prices, according to the bank, typically have a negative impact on discount retailers.
“Low-income consumers are disproportionately harmed, and discount retailers account for more than ten times the S&P earnings contribution of luxury goods,” Subramanian explained.