Stocks set to surge
RBC Capital Markets has named a number of sustainable stocks set to rise, spanning sectors including technology, energy and financials.According to the bank, some of the stocks “may be underappreciated” by these actively managed funds, and as a result, they have the potential to “climb the ownership rankings.”
RBS Capital Markets collaborated with RBC’s equity analysts to screen for the stocks, all of which have a market capitalization of $10 billion or more, according to a note published on June 24.
Last year, assets under management in sustainable funds surpassed $1 trillion.
Here are RBC’s top ten picks in the United States and around the world:
Retail and food
RBC chose fast-food company Chipotle (CMG) because of its sustainability efforts in food and animals, people, and the environment. “At the end of 1Q21, CMG was owned by 5% of actively managed global & US focused sustainable funds,” the analysts wrote, putting it in the second quartile of ownership among the Russell Mid Cap Consumer Discretionary sector fund.
RBC analyst Scot Ciccarelli has another recommendation: Walmart. “Walmart is in a far better ESG position than many third-party ESG ratings are giving them credit for, in part because it is likely being penalized for legacy issues,” he wrote. The bank is proud of its renewable energy efforts, with the goal of using renewable energy to power 50% of its operations by 2025.
The analysts chose Associated British Foods, which owns the American cooking oil brand Mazola, because it has “many of the same ESG practices as some of its Best in Class Retail peers [Inditex, H&M].” However, it also owns the fast-fashion retailer Primark, which may have influenced its position in ESG funds, according to RBC. “Its recent ESG event was reassuring to us in a number of ways,” the analysts wrote, citing initiatives such as prioritizing quality over quantity when opening new stores.
Square (SQ) is a candidate because of its goal of achieving net zero carbon emissions by 2030 and its efforts to transition from energy-intensive bitcoin mining to greener alternatives. According to the analysts, “SQ was owned by 8% of actively managed global and US focused sustainable equity funds as of 1Q21.”
RBC likes Docusign (DOCU) because it allows people to digitally sign documents, reducing the use of paper, and also because of its diverse leadership team. “As of 1Q21, DOCU was owned by 5% of actively managed global and US focused sustainable equity funds,” the analysts wrote.
According to RBC, cloud software firm Okta launched an ESG program last year and has integrated diversity goals into all of its business units. Okta was owned by 4% of actively managed global and US-focused sustainable funds in the first quarter of this year, according to the bank.
Materials and energy
AES is a good pick for the bank because it has reduced its coal generation to 25% and expects it to fall to 10% by 2025. It also intends to achieve net zero emissions by 2040. “We see this long-term goal as leading the industry, as many peers have set net-zero by 2050,” the bank wrote.
Equinor, a Norwegian energy company, is another RBS favorite due to its efforts to achieve carbon neutrality by 2030, as well as its offshore wind operations. However, the bank stated that its oil and gas production would increase by about 3% per year between 2019 and 2026, despite the fact that its scope 1 — or direct — emissions were lower than average.
Manufacturer of metal cans Crown was chosen by RBS because of its rising ESG standards in the areas of climate, resources, and circularity. According to the bank, the stock is held by 2% of actively managed global and US sustainable equity funds.
All of the stocks mentioned are on the bank’s “ESG Contenders” list. “We believe these names have the potential to move up the ownership rankings,” the analysts added.
Alternative energy picks
Clean energy stocks have posted lackluster returns this year following record gains in 2020, but JPMorgan Chase believes a number of catalysts during the second half of the year will push these stocks higher.
Because of this, analysts led by Mark Strouse compiled a list of their clean-tech technology recommendations by region.
The firm noted the energy retailers Sunrun and Sunnova as among its top picks into the second half.
Supply chain disruptions could mean that both companies are able to meet demand this year, according to industry analysts. If your inventory increases, you will gain market share.
Additionally, the firm also mentioned declining financing costs and a rise in battery attachment rates, or when consumers choose to purchase battery storage as well as rooftop panels.
Our research indicates that RUN and NOVA are the leading dogs in the industry, according to the firm.
The author has a neutral stock picking recommendation for both Strouse.”
It went up by 233% in the year 2020, but it’s down 11% for 2021. Aside from rising commodity prices, the other significant contributors to the year-to-date drawdown for JPMorgan have been interest rate increases and supply chain disruptions.
The many businesses who mentioned supply issues and higher shipping costs as having an impact on their businesses during the most recent quarterly updates all felt this was only temporary, but JPMorgan analysts believe these issues will not have a significant impact on demand.
To be more precise, we foresee “a temporary impediment in the multi-decade shift to renewables”…we think long-term investors who are prepared to look past the short-term supply issues will have opportunities because the stock market multiples have come down since the beginning of the year, as Strouse explains in his note.