Green hydrogen stocks
“Low-carbon hydrogen is critical to achieving national net-zero targets around the world, and the number of companies announcing hydrogen strategies is growing. To put the potential in APAC context, we believe hydrogen could play a much larger role in the energy mix than the current 12 percent occupied by natural gas,” UBS analysts wrote in a research note published on Aug. 5.
It comes at a time when world leaders and CEOs are under enormous pressure to implement policies that meet the demands of a looming climate emergency. This includes immediate action on energy, with United Nations Secretary-General Antonio Guterres calling for the landmark IPCC climate report to “sound the death knell” for coal, oil, and gas.
The growing need to transition away from fossil fuels has increased interest in low-carbon alternatives, and analysts at Wall Street’s biggest banks see green hydrogen’s growth potential as a “once-in-a-generation opportunity.”
UBS identifies seven stocks poised to soar on the green hydrogen theme.
Renewable natural gas is a nascent but growing market — here’s how to get in on the ground floor.
The U.S. infrastructure bill includes billions of dollars for clean energy, which could benefit these stocks.
It is called “green” because the feedstock, water, is considered clean, and the electricity is generated from a renewable source.
Renewable energy, integrated oil and gas, shipyards, and diverse equipment supplies, according to UBS, are the sectors best positioned to capitalize on hydrogen opportunities. Analysts at the bank identified the steel industry as one that may face the greatest risks, as so-called green steel may necessitate a carbon tax.
Picks for stocks
China’s Longyuan Power Group is one of the bank’s top picks in the renewable energy sector. UBS rates China’s largest wind power producer as a buy, saying the company could benefit from increased generation volume and margin expansion.
UBS recommends Korea Shipbuilding & Offshore Engineering as a stock in the shipyard sector. According to the bank, the South Korean company, which is a global shipbuilding leader, is “actively working” to develop green shipping technology. UBS rates the stock as neutral.
According to UBS, General Motors of the United States and Volkswagen of Germany were highlighted as buy options in the global auto industry. Analysts at the bank said the bank’s legacy position as a leading original equipment manufacturer in electric vehicles and autonomous vehicles was an appealing proposition for the former. Volkswagen, on the other hand, was thought to have the most aggressive EV strategy and the greatest EV re-rating opportunity, according to UBS.
General Electric, a US conglomerate, was said to be well-positioned to benefit from a global decarbonization drive in the electrical equipment industry. This was due to the benefits associated with increased demand for wind energy in GE’s portfolio. According to UBS, it also plays an important transition role for gas turbines because they provide “optionality” toward net-zero carbon emissions. The stock is rated as a buy.
Analysts at UBS highlighted Anglo-Dutch oil giant Royal Dutch Shell as one of the bank’s most preferred stocks in global oil and gas. UBS rates the stock as a buy, stating that the company promotes hydrogen through its marketing supply chain and is involved in a number of large-scale green hydrogen projects, including NortH2, Refhyne, and Rotterdam Green Hub.
UBS acknowledged that the broader decarbonization theme poses both opportunities and threats to the global oil and services industry. Baker Hughes, a provider of energy services in the United States, is one of its top picks. According to UBS, the company has leading turbomachinery technology that reduces emissions, improves performance, and optimizes operations. The bank rates the company as a buy.
Renewable natural gas stocks
Renewable natural gas is produced from organic waste sources such as landfills and dairy farms. As the material decomposes, a mixture of gases, including methane, is produced. The methane is then cleaned and conditioned before being transported via pipelines. After processing, the fuel is interchangeable with natural gas, which means it can be used for a variety of purposes, including heating homes and powering the electrical grid.
“We continue to believe that negative carbon RNG will play an important role in the future as the market places a premium on fuels that help companies meet their carbon neutrality targets,” Credit Suisse wrote in a recent client note.
It is more expensive than traditional natural gas and has a limited supply, but it is a way to use existing infrastructure to transport a lower-emissions fuel. It is not, however, without its own environmental impact. According to the Natural Resources Defense Council, burning methane still emits harmful air pollutants.
“We must be strategic in how we deploy them, and we must maintain our focus on ramping up scalable truly renewable and clean energy resources,” the group said.
Still, it’s an appealing bet for businesses looking to reduce their carbon footprint. Amazon and UPS are just two of the companies that have signed long-term contracts with RNG.
According to Adam Karpf, portfolio manager at CIBC Private Wealth Management’s Energy Infrastructure strategy, the industry is largely unnoticed. This is not a bet on technological advancements, as is the case with some cleantech startups.
“Most importantly, it’s proven technology using existing equipment that has been done for many years, albeit in very small quantities,” he explained. “This is not something I’m betting on in terms of technology….” It is a method of utilizing a cleaner source of energy supplies with existing technologies. Clean Energy Fuels is North America’s largest provider of renewable natural gas for the transportation industry, and is one of the industry’s few pure-play names.
In April, the company announced a partnership with Amazon under which it will provide low and negative carbon renewable natural gas at 27 existing fuel stations and an additional 19 non-exclusive new or upgraded stations owned by the company across 15 states. As part of the agreement, the tech behemoth also acquired a stake in Clean Energy Fuels.
“We believe CLNE’s partnerships with industry heavyweights position the company to create a vertically integrated Renewable Natural Gas (RNG) value chain that is difficult to replicate,” analysts at Needham, who rate the stock as
Clean Energy Fuels’ collaborations with BP and Total were also cited as potential upside catalysts by the firm. Needham anticipates that the company’s renewable natural gas volumes will increase by 9 percent on a compound annual growth rate basis through 2025, with company-owned stations accounting for 100 percent of sales in 2026 and beyond.
Clean Energy Fuels drew the attention of retail investors in June, who piled into the stock, sending shares soaring. Since then, the stock has fallen and is now flat for 2021. The company went public in 2007, and its stock reached an all-time high in March 2012. Since then, the stock has fallen by 67 percent.
Raymond James is not as bullish on the stock as Needham is. The firm, which downgraded the stock to underperform in April, stated that the stock has experienced “sentiment-driven multiple expansion.” According to analysts led by Pavel Molchanov, the company is also highly sensitive to policy incentives.
Rice Acquisition Corp. is a special purpose acquisition company that announced plans to merge with RNG companies Aria Energy and Archaea Energy in April. The transaction is expected to close in the third quarter of 2021. Karpf of CIBC is an advisor to the SPAC.
Utility companies that use RNG and pipeline companies that transport it are two other ways to gain exposure to the expanding RNG market.
JPMorgan recently stated that among utilities incorporating RNG, CenterPoint Energy, Dominion Energy, and Sempra Energy stand out.
“Multiple midstream companies maintain interconnections between their gas pipeline systems and RNG production facilities,” the firm explained in a client note. “While RNG currently accounts for a small portion of the gas transported, existing pipeline networks should be able to capture growing RNG volumes and interconnections over time.”
Enbridge, Kinder Morgan, and Williams Companies are the firm’s preferred midstream players.
Ameresco, a provider of energy services, is another name that gives investors exposure to RNG. The company designs, develops, and builds clean energy and energy efficiency projects in order to reduce emissions and save money on energy bills.
“We believe AMRC’s competitive advantage is that it acts as a one-stop shop for renewable energy and energy efficiency projects,” Piper Sandler said in July, when it initiated coverage with an overweight rating on the stock. The company’s stock is up 30 percent for 2021 and 112 percent in the last year.
“While we see strong performance, which is explained in part by Ameresco’s exposure to robust RNG pricing and federal energy efficiency prospects, we find it increasingly difficult to justify valuation with growth rate forecasts largely unchanged,” the firm wrote in a client note. xisting machinery.”