The firm also pointed to a “growing ‘economic wedge’ of rising utility costs and falling costs for RUN” as upside catalyst for the company.
After the recent pullback for the clean tech sector broadly, Morgan Stanley said other names including SolarEdge and Atlantica Sustainable Infrastructure also look attractive at current levels.
Autos & shared mobility
Electric vehicle supplier Aptiv is Morgan Stanley’s top pick in the autos and shared mobility sphere. The firm said the Dublin-based company’s growth is “underappreciated,” while also pointing to its exposure to “secular tailwinds in EVs and autonomous vehicles.”
Biden’s infrastructure plan includes $174 billion to build out the electric vehicle industry.
With supportive policy tailwinds, Morgan Stanley also favors General Motors, Tesla and Fisker, and rates each stock at overweight.
The firm called Fisker “one of the most de-risked and strategically underpinned business models in an increasingly crowded EV start-up field.”
Within the utilities sector, Morgan Stanley pointed to American Electric Power Company as an attractive bet for investors seeking exposure to companies involved in decarbonization. The firm has an overweight rating on the Ohio-based company.
Exelon Corporation and AES Corporation are also on the firm’s buy list. Looking forward, Morgan Stanley said that investors will reward companies seeking to make their operations greener.
“Faster decarbonization is highly correlated with faster EPS growth, and…ESG interest continues to revolve around ‘rate of change’ rather than absolute carbon emissions,” the firm said.
Heavy industry is key to a cleaner future, but it also includes some of the hardest areas to decarbonize. Morgan Stanley said Johnson Controls International stands out.
The firm envisions investments in higher-efficiency HVAC systems growing by $140 billion over the next 15 years to roughly $350 billion. “We believe these investments will generate cumulative savings of >$325 billion and reduce carbon emissions by 1.7 gigatons over the same time frame,” the firm said.
In addition to Johnson Controls, the firm also favors Trane Technologies and Carrier Global.
Morgan Stanley called Occidental its top pick among energy companies with exposure to the decarbonization theme. However, the firm rates the stock at equal-weight.
Morgan Stanley’s optimism around Occidental stems from the company’s involvement in emissions-reducing technologies including carbon capture. Morgan Stanley believes the carbon-capture market will jump to roughly $225 billion by 2050.
The firm also highlighted Exxon and Chevron, both of which it rates at overweight.
“Global scale across the energy value chain (including global fuels distribution networks) offers a key competitive advantage to advance underinvested areas of the energy transition — such as carbon capture (CCS), hydrogen, and renewable fuels,” the firm said.