We recently published a list of 8 Most Promising Clean Energy Stocks According to Hedge Funds. In this article, we are going to take a look at where NextEra Energy (NYSE:NEE) stands against other most promising clean energy stocks.
The Future of Clean Energy
The clean energy industry is rapidly becoming one of the most significant sectors globally. A report by Business Research Company estimates that the global clean energy market, valued at $1.10 trillion in 2024, is projected to grow to $1.55 trillion by 2028, at a compound annual growth rate (CAGR) of 8.8%. Environmental concerns, along with stringent regulations in many developed countries, are driving this expansion. Additionally, rising global power demand and energy consumption are critical factors fueling growth in the clean energy market.
The International Energy Agency (IEA) forecasts that global energy demand will increase by 3.4% annually through 2026, with China and India accounting for 85% of this growth. India, in particular, is expected to see a 6% annual increase in energy demand driven by its strong economic growth and rising household consumption. Southeast Asia is forecasted to experience a 5% annual rise in electricity demand over the same period. In the United States, data centers, artificial intelligence (AI), and cryptocurrency operations are expected to cause an increase in electricity demand, potentially doubling usage to 1,000 TWh by 2026.
IEA forecasts suggest that the growth in electricity generation from low-emission sources will meet the global demand increase over the next few years, with clean energy projected to surpass coal as the primary energy source by early 2025. In the US, the Energy Information Administration (EIA) expects clean energy deployment to grow by 17% in 2024, potentially reaching 42 GW and accounting for nearly a quarter of the nation’s electricity generation. However, this expansion might come with a temporary rise in clean energy costs due to higher financing, labor, and land expenses.
Despite these cost challenges, tax credits from the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) are expected to keep solar and wind energy competitive. Solar and energy storage markets are set for further growth, driven by these tax incentives and government support, particularly from the Department of Energy’s (DOE) Loans Program Office. On the other hand, the wind and hydrogen energy sectors may face obstacles, such as higher deployment costs for wind energy and limited government incentive programs for hydrogen development.
Tyler Rosenlicht, Head of Natural Resource Equities, at Cohen & Steers, in an interview to Bloomberg, shared his insights on the future of energy markets, emphasizing the growth of renewable and clean energy sources. According to Rosenlicht, the energy landscape is diversifying, with natural gas, nuclear, and alternatives gaining prominence alongside oil. He noted that while oil remains a significant driver of production and energy supply, its dominance is diminishing. The increasing demand for energy to power technological advancements, urbanization, and travel is driving the growth of other energy sources.
Rosenlicht highlighted the importance of considering the broader energy landscape, beyond just oil, to understand the changing dynamics of the market. He emphasized that the energy intensity of the global economy is becoming more complex, with technological growth leading to increased energy consumption.
In the context of renewable energy, Rosenlicht expressed his bullishness on companies building electrification assets and infrastructure to satisfy growing electricity demand. He specifically mentioned companies that construct transmission wires, trains, and mission lines as potential investment opportunities. Furthermore, Rosenlicht emphasized the significance of nuclear energy in the long run, citing the need to refurbish existing nuclear assets and build new ones globally to meet the demand for low-carbon energy. He also highlighted the potential of integrated energy companies that are pursuing the energy transition using their existing infrastructure and assets.
On the traditional energy side, Rosenlicht expressed his liking for U.S. natural gas, citing the growing demand for LNG exports to global consumers and the expected curtailment of supply in the next few years. Rosenlicht acknowledges that the energy market is undergoing a significant transformation, with renewable and clean energy sources gaining traction. As an investor, he is optimistic about the prospects of companies involved in building the infrastructure and assets necessary to support this transition.
The clean energy sector is well-positioned for substantial growth, driven by rising environmental awareness, supportive regulations, and technological advancements in wind, solar, and hydropower. While the industry does face challenges like high upfront costs and technological barriers, the overall outlook remains optimistic.
Our Methodology
For this article, we scanned Clean Energy ETFs plus online rankings to compile an initial list of 50 clean energy stocks. From that list, we narrowed our choices to 8 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? 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 (NYSE:NEE)
Number of Hedge Fund Holders: 73
NextEra Energy (NYSE:NEE) is the world’s largest producer of wind and solar energy and a leader in battery storage technology. NextEra Energy’s (NYSE:NEE) operations are divided into two primary businesses. The first is Florida Power & Light (FPL), an electric utility company. The second is NextEra Resources (NEER), one of the world’s largest producers of clean energy and a leader in battery storage. NEER focuses on developing, constructing, and operating long-term clean energy assets, primarily in the United States and Canada.
With over two decades of experience in clean energy projects, NextEra Energy (NYSE:NEE) has a significant competitive advantage. In 2022, the company held 56% of the wind energy market and 38% of the clean market share from 2019 to 2022. NEER operates a clean energy portfolio of approximately 34 GW, which includes 24 GW from wind, 7 GW from solar, and 2 GW from nuclear energy. NEER also has 1 GW of battery storage capacity across 16 U.S. states.
Nearly 93% of the company’s revenues come from long-term Power Purchase Agreements with data centers and tech companies, providing stable and predictable cash flows. NextEra Energy’s (NYSE:NEE) financial performance remains strong, with adjusted earnings increasing by 10.8% in Q2, driven by investments and a growing clean portfolio. Looking ahead, the company expects its earnings per share (EPS) to grow by 6-8% annually through 2027 and plans to increase dividend payments by 10% annually. Analysts forecast that the company’s earnings will rise by 7.29% in the current year.
Overall, NEE ranks 2nd on our list of most promising clean energy stocks according to hedge funds. While we acknowledge the potential of NEE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher 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.
