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26 renewable-energy stocks best-positioned to benefit from increased spending as governments

Wind turbines rise from the fog in the Bavarian Forest

Wind turbines rise from the fog in the Bavarian Forest

Armin Weigel/Getty Images

  • Joe Biden and Janet Yellen are anticipated to put climate action at the forefront of fiscal agenda.
  • Goldman Sachs estimate the global net-zero commitment will create $1 trillion in investments per year.
  • This is Goldman Sachs’ renewable energy basket, which is well-placed for the energy transition.

 

Coronavirus has devastated economies, putting millions out of work and historic amounts of debt on company balance sheets. But, there is a silver lining. The resultant low rates have slashed borrowing costs, enabling governments to increase their fiscal spending towards net zero carbon ambitions, according to Goldman Sachs.

 

On the first day of his presidency, Joe Biden rejoined the Paris Agreement, just as he pledged when on the campaign trail. In the meantime, Treasury Secretary nominee Janet Yellen told the Senate Finance Committee on Tuesday she plans to create a ‘hub’ that will examine the financial risks stemming from climate change and study other related tax policy incentives.

 

Europe is leading the charge towards a net-zero emissions world. In January, the European Union unveiled a €1 trillion ‘Sustainable Europe Investment Plan’, while British Prime Minister Boris Johnson plans huge investment in nuclear power and carbon-capture technology, as well as a quadrupling of offshore wind power capacity.

 

Signatories to the Paris Agreement commit to taking measures to limit global warming to below 2 degrees Celsius compared to pre-industrial levels. Goldman Sachs estimates the transition to a lower-carbon world could drive as much as $1-2 trillion in green infrastructure investment a year over the next ten years.

 

“Companies exposed to the energy transition are likely to deliver unprecedented growth over the coming decades,” Goldman Sachs strategists wrote in a note published January 11.

 

 

Renewables are leading the price performance in EuropeBloomberg, STOXX, Goldman Sachs Global Investment Research

 

To gain exposure to this huge capital investment, Goldman Sachs has put together a European renewable energy basket, gathering companies exposed to the transition from fossil fuels to renewable energies, like solar, wind and hydro.

 

“These companies should benefit from attractive regulatory frameworks, technological innovations, creative financial innovations and consistent flows into ESG funds,” the note said.

 

In 2020 alone, the basket outperformed the STOXX 600, a European equity market index, by more than 50%, up by +47%, compared to the index’s -4%, the note said.

 

Even without the prospect of huge public investment, investors are embracing funds with a bias towards environmental, social and governance-themed (ESG) assets as a source of return. Since January 2019, ESG funds have steadily grown, investing $66 bln from investors globally into European equities, compared to the net outflow of $190 bln for non-ESG funds, Goldman noted.

 

ESG Flows Goldman

Flows from ESG funds are growing steadily, in USD bln.

EPFR, Goldman Sachs Global Investment Research

 

Green doesn’t yet come cheap

It’s not uncommon for growth stocks to look pricey. This basket is already trading at an all-time high with a P/E multiple of 26, which is a 70% premium to the broader market and a 16% premium to other cyclical stocks. However, Goldman says the components in the basket will all profit from the longer term structural shift towards clean energy, which should enable them sustain growth in net income roughly on a par with the likes of the healthcare, communication or biotech sectors, over the next decade.

 

Here are the 26 stocks that Goldman has handpicked for its European renewable energy basket:

Acciona

 

Acciona share price

Markets Insider

  • Ticker: ANA.BME
  • Market cap: €7.04 bln ($8.57 bln)

Air Liquide

Air Liquide share price
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  • Ticker: AI.EPA
  • Market cap: €61.65 bln ($75.06 bln)

EDP

EDP share price 
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  • Ticker: EDP.ELI
  • Market cap: €21.09 billion ($25.58 billion)

EDP Renováveis

EDP Renováveis share price
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  • Ticker: EDPR.ELI
  • Market cap: €20.11 billion ($24.39 billion)

Encavis

Encavis share price
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  • Ticker: ECV.ETR
  • Market cap: €3.29 billion ($4.01 billion)

Enel

Enel share price
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  • Ticker: ENEL.BIT
  • Market cap: €85.00 billion ($103.47 billion)

Engie

Engie share price
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  • Ticker: ENGI.EPA
  • Market cap: €85.00 billion ($103.47 billion)

ERG

ERG share price
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  • Ticker: ERG.BIT
  • Market cap: €3.94 billion ($4.80 billion)

Iberdrola

Iberdrola share price
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  • Ticker: IBE.BME
  • Market cap: €74.75 billion ($90.98 billion)

Linde

Linde share price
Markets Insider
  • Ticker: LIN.NYSE
  • Market cap: €132.89 billion ($161.74 billion)

Nel

Nel share price
Markets Insider
  • Ticker: NEL.OL
  • Market cap: $5.47 bln

Neoen

Neoen share price
Markets Insider
  • Ticker: NEOEN.EPA
  • Market cap: €5.74 billion ($6.99 billion)

 

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