Clean energy stocks have struggled since the pandemic, with negative returns each year since 2021. They’ve underperformed the market by 18% this year, and their valuation has halved from a peak in September 2021, according to Bernstein. But the sour sentiment toward the sector may be short-lived, according to the investment bank. Analysts at Bernstein say there is significant potential for growth in several clean energy companies, thanks to recent policy changes and increased investment. Those include Europe’s RePowerEU plan ; the EU’s support for clean tech manufacturing; and surging carbon prices , which are now four times higher than they were in 2019 at over $90 per tonne. On top of that, heavy investment from the United States’ Inflation Reduction Act will support decarbonization efforts. The investment bank added that despite the rising costs of renewable equipment and increasing rates, renewables remain more competitive than fossil fuels. Bernstein named Danish wind-energy producer Orsted , wind-turbine maker Vestas and Chinese battery-maker CATL among the stocks to buy. Shares of Orsted and Vestas are also traded on U.S. stock exchanges. Orsted Bernstein expects shares of Orsted to rise by nearly 60% to 975 Danish Krone ($144) a share. The offshore wind power generator’s stock, which is Bernstein’s “top idea” among European stocks engaged in clean energy, has fallen by more than 35% from 2021. The investment bank said investor concerns about impairment charges for a U.S. renewable project and a “messy” hedging issue in 2022 had dented investors’ appetite for the stock. DNNGY 5Y line However, at its current share price, the stock is “too cheap to ignore” as the company is now expected to focus on “value over volume, no equity raise, disciplined bidding and capital allocation with higher return expectations for newer projects,” the bank said in a note to clients on May 4. Vestas Shares of Danish wind-turbine maker Vestas Wind Systems is expected to rally by more than 35% over the next 12 months as it is a “clear beneficiary” of U.S. and European policy trends, according to Bernstein. However, the bank said the company’s profit margins have come under pressure over the past two years in light of supply chain bottlenecks during the pandemic and, more recently, a run-up in input costs as inflation rises globally. VWDRY 5Y line “Vestas’ order intake pricing which improves margins with a ~18 month lag as well as an uptick in order activity will support the company’s margin recovery,” wrote analysts led by Sarah McCarthy in a note to clients. CATL Bernstein said battery-maker Contemporary Amperex Technology Co. Limited, also known as CATL, was its “top pick” in China. The bank maintains a price target of 630 Chinese yuan a share ($91), which points to a more than 100% upside for the share price from current levels. Bernstein said growth in battery demand might slow down temporarily but will likely continue its upward trend in the long term, thanks to a shift toward electric vehicles. With declining lithium prices making electric vehicles more competitive again, and with government support for ambitious EV adoption rates globally, battery makers like CATL are poised for significant gains, the bank added. “Although the IRA will limit opportunities in the U.S. and increased capacity in China could pose a risk, CATL remains a step ahead of competitors in battery technology,” said Bernstein analysts. “We believe a [long-term] 30% (vs 37% currently) market share globally is achievable which supports our price target.” — CNBC’s Michael Bloom contributed to this report.
