Morgan Stanley said high utility costs and growing consciousness may drive a consumer shift to environmentally friendly products in residential housing — and there’s a group of stocks that could benefit. The firm’s economists said the U.S. could be nearing an inflection point in the housing cycle if interest rates peak in the second half of this year before giving way to a broader recovery through 2024. That recovery should be driven by growing activity in the single-unit housing market, analyst Laura Sanchez said in a July 26 report. This comes as consumers grow more aware of the environmental impacts associated with homebuilding and energy, as well the financial incentives tied to climate-friendly products in the Inflation Reduction Act. On a broader level, she said stocks that are tied to energy-efficient equipment, green building materials and clean technology for residential use could all benefit in this space. “Growth in these markets is supported by the financial incentives provided in the Inflation Reduction Act (which included various tax credits, loans and grants to improve energy efficiency and climate resiliency of residential buildings), households’ awareness of, and preference for, environmentally friendly options, and — in some cases — the declining cost of clean technologies,” she said. Morgan Stanley has five stocks with overweight ratings across the green housing landscape. These names made the cut: Sanchez said the transition to clean technologies is deflationary, especially in states with rising utility costs like California. Sunnova and Sunrun , which both made the list, are examples of companies that utilize contracts to lease solar panels to consumers with no upfront costs and a month-to-month bill that’s typically cheaper than utilities. When also considering boosts from IRA incentives and more customer awareness, she said the residential solar market could grow from a roughly $20 billion industry in 2024 to more than $30 billion by 2035. While some regions have seen demand cool, she said that’s due mainly to challenges tied to the broader macroeconomy and that investors can still expect growth in the long term. Both Sunnova and Sunrun have monster rebounds expected after underperforming the market so far this year. The average analyst anticipates Sunnova will rise 85% over the next year, while Sunrun is expected to add nearly 80%, according to Refinitiv. Shares of both companies are down in 2023. NOVA RUN YTD mountain Sunnova and Sunrun’s 2023 HVAC company Trane Technologies is one stock can that benefit from the trend of home replacement projects typically including more environmentally friendly options, Sanchez said. Despite concerns that high replacement rates may not continue, she noted opinions from colleagues saying there could be more staying power than expected. Not everyone on Wall Street is optimistic about the climate-conscious company. The average analyst holds a buy rating, while the average price target implies the stock’s 2023 rally could be coming to an end, according to Refinitiv. Shares hit a high not seen since early 2022 on Monday. Elsewhere, Mexico-based cement maker Cemex and building technology company Johnson Controls also made the list. Cemex is expected to rise another 4% after surging nearly 90% so far in 2023, per Refinitiv, while Johnson has an upside of 6% after advancing a relatively modest 8% year to date. — CNBC’s Michael Bloom contributed to this report
