We recently published a list of 12 Best Infrastructure Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where NextEra Energy Inc. (NYSE:NEE) stands against other best infrastructure stocks to buy according to hedge funds.
Doug Rachlin, Neuberger Berman senior portfolio manager, joined CNBC’s ‘Squawk on the Street’ on January 27 to discuss why he believes that the current opportunity set in infrastructure is the best he has seen in three decades. Managing this strategy since the summer of 1996, Rachlin pointed to several factors driving his optimism. One major aspect is the role of midstream infrastructure companies in supporting energy dominance in the US. The US leads globally in propane exports, accounting for 46% of worldwide supply.
Rachlin emphasized that these investments align with principles from investors like Charlie Munger. He advocates for concentrated investing based on strong conviction rather than spreading bets thinly across many stocks. Regarding recent developments that might impact pipeline companies involved in natural gas transmission, such as news related to deep sea activities, Rachlin noted that natural gas prices reaching $4 were due to cold winter weather rather than AI-driven data center buildouts. He highlighted growth prospects for LNG exports over the next decade, which could reach up to 35 billion cubic feet per year under favorable policies initiated during Trump’s administration.
This growth aligns well with Neuberger Berman’s focus on midstream infrastructure within their broader energy transition strategy. The firm emphasizes utilities, renewables, and Master Limited Partnerships alongside traditional energy assets like pipelines critical for transporting natural gas. This is a vital component in powering data centers across the country. As LNG exports are set to double over four years (from ~13 billion cubic feet today to potentially over 25 billion cubic feet by end-2028) and possibly reach even higher levels thereafter, the demand for robust midstream infrastructure will continue growing. This scenario underscores why Rachlin views current opportunities as compelling within his long-standing career managing this sector-focused investment strategy.
The infrastructure asset management (IAM) market is booming. It was worth $37.65 billion in 2022 and is predicted to grow by 8.9% each year until 2030. This is because companies are using these services to save money on infrastructure maintenance. Industries like manufacturing and oil and gas use IAM to optimize existing assets and ensure upkeep, especially since upgrading older designs is expensive. For example, much of the US’s energy infrastructure is 25+ years old, and Europe struggles with water waste due to leaky pipes. IAM helps maximize return on assets, improving quality and productivity.
Methodology
We first sifted through ETFs, online rankings, and internet lists to compile a list of the top infrastructure stocks to buy. We then selected the 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A wind turbine, its blades spinning to generate clean renewable energy.
NextEra Energy Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 69
NextEra Energy Inc. (NYSE:NEE) generates, transmits, distributes, and sells electric power to retail and wholesale customers across North America. Using a diverse mix of energy sources, which include wind, solar, nuclear, and natural gas, it has a net generating capacity of ~33,276 megawatts. It also develops and operates clean energy solutions and participates in wholesale energy markets.
The company’s $150+ billion decade-long investment in energy infrastructure, with another $120 billion planned, is the key to its growth. This includes nuclear, gas, and renewables/storage, which drive consistent financial outperformance. The company added 8.7 GW of renewables/storage in 2024, with Energy Resources booking a record 12 GW in new projects, marking a 30% increase year-over-year and totaling a 25+ GW backlog. This renewable infrastructure expansion fuels growth.
FPL’s (Florida Power & Light) $8.2 billion 2024 investment in grid modernization and generation strengthens reliability and drives stable returns. It’s the largest electric utility in the state of Florida and one of the largest in the US. FPL is a subsidiary of NextEra Energy Inc. (NYSE:NEE). $36 billion more is planned through 2025, which emphasizes utility infrastructure development. The company’s infrastructure focus translates to 8%+ EPS growth in 2024 and a 10%+ CAGR since 2021. These investments directly drive revenue and profitability.
Following the company’s Q4 2024 report, Argus analyst Marie Ferguson lowered the price target to $86 from $90 on January 27, while maintaining a Buy rating. The price target adjustment reflects a correction after the 2024 sector momentum driven by interest rates. However, analysts remain optimistic about the company’s Florida operations due to the state’s economic and population growth.
Madison Sustainable Equity Fund stated the following regarding NextEra Energy, Inc. (NYSE:NEE) in its Q3 2024 investor letter:
“The top contributors in the quarter were NextEra Energy, Inc. (NYSE:NEE), Oracle Corporation, Progressive Corporation, Equifax Inc., and United Healthcare. NextEra has continued to perform well given its strong position in the renewable energy space, increasing demand for power, its transmission capabilities, as well as a tailwind from lower interest rates.”
Overall, NEE ranks 1st on our list of best infrastructure stocks to buy according to hedge funds. While we acknowledge the growth potential of NEE, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NEE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
