We recently compiled a list of the 10 Best Renewable Energy Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Vistra (NYSE:VST) stands against the other renewable energy stocks.
The Future of Renewable Energy
The renewable energy industry is currently one of the most prominent sectors globally. Examples of renewable fuels include wind, hydropower, biofuel, and solar energy. According to a report by Business Research Company, the global renewable energy market was valued at $1.10 trillion in 2024 and is expected to reach $1.55 trillion by 2028, growing at a CAGR of 8.8%. Environmental concerns and strict environmental regulations in many developed countries have significantly boosted the sector and the energy generation industry has seen an increase in installed capacity for renewable energy sources. The increase in power demand and energy consumption are also some of the key reasons for the growing demand in the renewable energy market.
According to the International Energy Agency (IEA), the global energy demand is forecasted to increase by 3.4% annually till 2026. Around 85% of the demand is expected to come from China and India. The energy demand in India alone is forecasted to grow by 6% annually till 2026 due to robust economic growth and rising household consumption. Southeast Asia is expected to see a 5% annual increase in electricity demand by 2026. In the United States, a moderate increase in electricity demand is expected in the coming years, mainly due to the growing need for data centers. The electricity usage by data centers, artificial intelligence, and cryptocurrency could potentially double to 1,000 TWh by 2026. According to the IEA, the rise in electricity generation from low-emission sources will meet global demand growth over the next three years, with renewable energy anticipated to surpass coal as the leading energy source by early 2025.
The U.S. Energy Information Administration (EIA) expects renewable energy deployment to grow by 17% in 2024 to potentially reach 42 GW and contribute to nearly a quarter of the nation’s electricity generation. However, this growth might come with a temporary increase in renewable energy costs due to high financing, labor, and land expenses. Despite this, tax credits from the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) are likely to keep solar and wind energy competitive. Solar and storage markets are expected to see further expansion, driven by tax incentives and government support, particularly through programs like the DOE’s Loans Program Office. On the other hand, the wind and hydrogen energy sectors might face challenges. Wind energy is encountering higher deployment costs and delays in obtaining approvals, while hydrogen energy struggles due to a lack of government incentive programs to support its development.
Investing in Renewable Energy
Hanchen Wang, Equity Analyst at DWS Group, expresses optimism about the future of the renewables market, noting its growing appeal to investors due to the potential for stable long-term returns and alignment with global sustainability goals. Wang emphasizes that while renewable energy sources like wind, solar, and hydropower are gaining market share, they still encounter challenges such as high upfront costs and intermittency issues. He underscores that advancements in technology, including better energy storage solutions and enhanced grid infrastructure, are essential for overcoming these obstacles and fostering the sector’s growth.
In a recent interview, Bruce Flatt, CEO of Brookfield Asset Management, highlighted the significant impact of decarbonization on industries and investments, calling it a major trend reshaping the landscape. The company has launched a dedicated renewable energy fund, initially raising $15 billion, with plans to establish a second fund. This initiative aims to support companies in reducing their carbon emissions by investing in and developing renewable energy projects. Flatt emphasized that the company is one of the largest global developers and owners of renewable energy assets, with solar and wind power projects in 15 countries. The company’s strategy includes not only constructing renewable energy infrastructure but also supplying renewable power directly to corporate clients, helping them achieve their net-zero commitments. The U.S. Inflation Reduction Act (IRA) has positively impacted the renewable energy sector, providing significant incentives that have accelerated project development. Flatt noted that the Act has increased the likelihood of project completion, with more projects advancing at a faster pace, which benefits the renewable energy market.
The renewable energy sector is poised for substantial growth, driven by increasing environmental awareness, favorable regulations, and advancements in technologies like wind, solar, and hydropower. Although the industry faces challenges such as high upfront costs and technological barriers, its overall outlook is optimistic. With that in context here are the 10 best renewable energy stocks to buy according to hedge funds.
Our Methodology
For this article, we scanned clean energy ETFs plus online rankings to compile an initial list of 50 renewable energy stocks. From that list, we narrowed our choices to 10 stocks that were the most widely held by hedge funds. The hedge fund data was taken from our database of 912 elite hedge funds as of Q2 of 2024. We also included the market cap of these companies as of September 2. 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).
Solar panel workers installing a new farm for clean energy generation.
Vistra (NYSE:VST)
Number of Hedge Fund Holders: 93
Market Capitalization as of September 2: $29.35 Billion
Vistra (NYSE:VST) is a vertically integrated energy company based in Texas. The company focuses on a diversified energy portfolio and is involved in electricity generation, wholesale energy sales, fuel production, and logistics. Vistra (NYSE:VST) supplies electricity and natural gas to residential, commercial, and industrial customers. Vistra (NYSE:VST) also operates battery energy storage facilities and its nuclear assets play a vital role in supplying energy for artificial intelligence (AI).
As the demand for renewable energy particularly from AI and data centers is surging, Vistra (NYSE:VST) is exceptionally well-positioned to capitalize on this trend. In March 2024, Vistra (NYSE:VST) completed the acquisition of Energy Harbor, which expanded its nuclear capabilities by 4,000 megawatts and added approximately 1 million additional retail customers to its portfolio. Vistra (NYSE:VST) has also implemented AI technologies within its operations to increase the efficiency of its power plants, enhance thermal efficiency, and reduce carbon emissions. The company implemented the Heat Rate Optimizer (HRO) in almost 67 power-generation units across 26 plants which helped the company achieve an average 1% improvement in efficiency and company save millions in operational costs.
In their second quarter 2024 investor letter, Legacy Ridge Capital stated the following remarks regarding Vistra (NYSE:VST):
“One of the sectors we know well which had been out of favor for several years has quickly come into favor: Independent Power Producers (IPPs). We’ve written consistently about NRG and Vistra Corp. (NYSE:VST) since the 2019 letter, have owned each, or both, since 2018, and invested a meaningful amount of our assets in VST specifically the past few years. Nate and I intend on spending more time in the year-end letter on our updated views on the IPPs and our learnings from the on-going investment, but we were a bit surprised how quickly the narrative around these companies changed. Our Blue Sky 2030 estimates of intrinsic value converged with the share price 6-years before we thought probable.
For the quarter that ended on June 30, Vistra’s (NYSE:VST) operations net income, which reflects its core business activities, increased to $492 million from $409 million in the previous year. Additionally, the company’s Adjusted EBITDA increased by 40% to $1.41 billion compared to $1.0 billion for the same quarter in the previous year.
Vistra (NYSE:VST) is a strong contender for data centers in need of dependable and clean energy solutions. The company’s strategic investments in renewable energy, combined with its capability to harness AI and take advantage of market trends, offer an attractive opportunity for investors seeking to profit from the ongoing energy shift. Vistra (NYSE:VST) has a market cap of $29.35 billion as of September 2. The stock is held by 93 hedge funds with stakes worth $4.03 billion as of the second quarter. Lone Pine Capital is the largest shareholder with stocks worth $587.93 million as of June 30.
Overall VST ranks 1st on our list of the best renewable energy stocks to buy. While we acknowledge the potential of VST 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 VST 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.
