Companies involved in the electric vehicle value chain, as well as some airlines and biofuel manufacturers, stand to benefit. The firm also likes some upstream oil and gas producers, but warns that pure-play refiners will continue to face challenges.
Goldman recently raised its forecast for electric vehicle sales, now projecting a 25% market share by 2030, up from an 18% forecast previously. This equates to 135 million EVs, or 9% of all cars on the road. According to the firm’s hyper-adoption scenario, EVs could reach 227 million by 2030, accounting for 15% of global car sales.
According to Goldman, Tesla is one of the names to buy.
“Tesla, given its leadership position in EVs (including vertical integration, battery efficiency, tight coupling of hardware and software, ecosystem of charging stations, and strong brand), and its focus on clean energy more broadly (e.g., through its solar and storage businesses), will be best positioned to capitalize on the long-term shift to EVs among companies in our US autos coverage,” the firm writes. Goldman Sachs has set a 12-month price target of $835 on the stock. On Friday, the stock closed at $739.78.
The firm also has a buy rating on Volkswagen, based in Germany, and SK Innovation, based in South Korea.
While Goldman believes that oil demand for automobiles will fall as electric vehicles become more popular, demand for jet fuel should rise as more people fly.
“We see petrochemicals and jet fuel as a growing part of long-term oil barrel demand, driven by tailwinds from economic growth in emerging economies, as well as improving life styles and urbanization trends,” Bhandari said.
Alaska Air Group is the firm’s top pick in the airline sector, with United Airlines also standing out. Goldman, which rates both stocks as buy, believes they are well-positioned for the post-Covid surge in travel.
“We believe ALK shares offer the best risk/reward in our coverage due to its industry-leading balance sheet, unique cost tailwinds, and significant exposure to domestic, leisure demand, which we believe will recover the fastest,” Goldman said. The company set a 12-month goal of $90. On Friday, the stock closed at $69.33.
Goldman anticipates a greater buildout of biofuels, including renewable diesel, in the future. Names like Texas-based Darling Ingredients and Finland-based Neste, both of which the firm rates as buy, should benefit from this.
Since the pandemic’s demand hit sent West Texas Intermediate crude futures into negative territory for the first time on record last April, oil prices have recovered. As a result of the vaccine rollout, demand has begun to recover, while supply cuts have supported prices.
On Friday, Brent crude futures, the international oil benchmark, were trading around $66 per barrel. Goldman believes the contract will reach $80 by the third quarter, resulting in better results for upstream producers.
The company prefers BP, Exxon, Devon, and Hess.
Exxon, according to Goldman, has “expectations for a positive earnings revision cycle as the macro improves and cost reductions remain top-of-mind,” as well as “management’s commitment to capital discipline and prioritization of deleveraging vs. increasing spend in the near term as oil prices improve.”
The stock has a 12-month price target of $65 set by the firm. Exxon’s stock closed Friday at $56.66.
Companies are going green
At now, corporations are committing to make the switch to renewable energy, but they’ll need assistance to do it. Raymond James views this trend as beneficial for firms like SunPower.
According to Raymond James, the group’s total power consumption is 315 terawatt-hours, which exceeds that of the entire U.K. economy, highlighting the group’s significance.
RE100, according to the firm, demonstrates the growing importance of ESG investing, which is defined as investing based on a company’s environmental, social, and corporate governance factors. Because the coalition is made up of energy consumers rather than producers, these businesses are not compelled to go green by regulatory mandates.
Given the interim targets of RE100, Raymond James stated that “substantive action is required right away, rather than at some distant point in the future.”
“By definition, these targets do not have legal force, but the public profile of RE100 is such that any company that makes the pledge and fails to deliver will pay a PR price, including a drop in its ESG score,” the firm explained.
While ESG is almost universally cited as a motivator for companies to join RE100, cost is also a factor. Indeed, 70 percent of businesses cited cost as another reason for switching to renewable energy.
“The combination of environmental benefit and tangible financial gain makes switching to renewable energy a textbook win-win proposition,” the firm said, adding that the magnitude of savings varies depending on location.
Ameresco, Bloom Energy, ReneSola, and SunPower are four companies with direct ties to the green operations push, according to Raymond James.
Ameresco, based in Massachusetts, manages energy efficiency upgrades for commercial and institutional buildings. “The United States federal government is Ameresco’s largest customer, and the majority of the company’s revenue comes from the public sector overall, but the company has done projects for businesses ranging from bank office buildings to restaurants,” Raymond James noted. The company has a market capitalization of $2.6 billion, and its shares are down less than 1% year to date.
Meanwhile, Bloom Energy produces stationary fuel cells that have been used to power everything from data centers to hospitals to retail stores. “The fuel cells typically use conventional natural gas feedstock, but they can also run on renewable natural gas or green hydrogen, in which case the output conforms to the RE100 rules,” Raymond James explained. The company’s shares, which have a market cap of $4.8 billion, are down about 3% for 2021.
ReneSola and SunPower are both solar companies that build and sell solar projects. In other words, the companies build the solar farm before selling it to other owners who want to increase their renewable energy footprint.
ReneSola’s stock in the United States is down 10% for the year, while SunPower’s stock is up 15%.