We recently compiled a list of the 7 Best Alternative Fuel Stocks To Buy Right Now. In this article, we are going to take a look at where Vistra (NYSE:VST) stands against the other alternative fuel stocks.
The Future of Alternative Fuels
The alternative fuel and renewable energy industry is currently one of the most prominent sectors globally. Examples of alternative or renewable fuels include wind, solar, hydropower, and biofuel energy. According to the Business Research Company, the global alternative fuel or renewable energy market was valued at $1.10 trillion in 2024 and is projected to reach $1.55 trillion by 2028, growing at a CAGR of 8.8%. The growing environmental concerns and strict environmental regulations in many developed countries have significantly boosted the renewable energy sector and the energy generation market has seen an increase in installed capacity for renewable sources. The increasing power demand and energy consumption are also the key reasons for the growing demand in the alternative or renewable fuels industry.
According to the International Energy Agency (IEA), the global energy demand will increase by 3.4% annually by 2026, 85% of this additional demand is expected to come from China and India, with India’s electricity demand alone predicted to grow by over 6% annually until 2026 due to economic growth and rising air conditioning use. Southeast Asia is also expected to see a 5% annual increase in electricity demand through 2026. In the United States, a moderate rise in electricity demand is anticipated in the coming years, primarily driven by data centers. The electricity consumption by data centers, artificial intelligence, and cryptocurrency could potentially double to 1,000 TWh by 2026. IEA forecasts that the surge in electricity generation from low-emission sources will meet global demand growth over the next three years, with renewable energy expected to surpass coal as the leading energy source by early 2025.
The U.S. Energy Information Administration (EIA) anticipates a 17% growth in renewable energy deployment in 2024, potentially reaching 42 GW and contributing to nearly a quarter of the nation’s electricity generation. However, this growth may be accompanied by a temporary rise in renewable energy costs due to high financing, labor, and land expenses. However, tax credits from the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) are expected to sustain the competitiveness of solar and wind energy. Solar and storage markets are expected to expand further due to tax incentives and government support, particularly through programs like the DOE’s Loans Program Office. However, the wind and hydrogen energy sector may face challenges. Wind energy is facing challenges due to higher deployment costs and delays in getting approval, while hydrogen energy is struggling due to a lack of government incentive programs to support it.
Investing in a Greener Future
In a recent interview, Bruce Flatt, CEO of Brookfield Asset Management, emphasized that the decarbonization of the world is a major trend reshaping industries and investments. The company has established a dedicated renewable energy fund, initially raising $15 billion and planning to raise a second fund, that aims to support companies in reducing their carbon emissions by investing in and developing renewable energy projects. Flatt highlighted that they are one of the largest global builders and owners of renewable energy assets, including solar and wind power projects across 15 countries. The company’s approach involves not only building renewable energy infrastructure but also directly supplying renewable power to corporate clients, which helps these companies meet their net-zero commitments. The U.S. Inflation Reduction Act (IRA) has had a positive impact on the renewable energy sector. The IRA has provided substantial incentives for renewable energy projects, which has accelerated the pace of development. Flatt pointed out that the Act has increased the likelihood of projects being completed, with more projects moving forward in less time, which is beneficial to the renewable energy market. He mentioned that they target returns of approximately 9-10% for debt products and around 20% for equity investments in the renewable sector. Flatt is optimistic that returns will improve as the sector continues to grow and attract more capital.
Hanchen Wang, Equity Analyst at DWS Group, is optimistic about the renewables market’s future and believes that the market is becoming increasingly attractive to investors due to the long-term potential for stable returns and the alignment with global sustainability goals. Wang highlights that while renewable energy sources like wind, solar, and hydropower are expanding their market share, they are still facing challenges such as high initial costs and intermittency issues. He points out that advancements in technology, such as improved energy storage solutions and grid infrastructure, are critical to addressing these challenges and supporting the sector’s growth.
The alternative fuel and renewable energy industry is expected to grow significantly due to growing environmental awareness, supportive regulations, and technological advancements in alternative fuels like wind, solar, and hydropower. Despite facing challenges such as high initial costs and technological hurdles, the sector’s trajectory remains positive, driven by strong global demand and substantial investment opportunities.
Our Methodology
For this article, we used Clean Energy ETFs plus online rankings to compile an initial list of 40 alternative fuel stocks. From that list, we narrowed our choices to 7 stocks according to their hedge fund sentiment, which 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 August 20. The list is sorted in ascending order of their hedge fund sentiment, as of June 30.
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 August 20: $28.27 Billion
Vistra (NYSE:VST) is involved in electricity generation, wholesale energy sales, commodity risk management, fuel production, and logistics. The company was founded in 1882 and sells electricity and natural gas to residential, commercial, and industrial customers. Vistra (NYSE:VST) operates battery energy storage facilities and a diversified energy portfolio that produces approximately 41,000 megawatts using natural gas, coal, nuclear, and solar.
For the quarter ended on June 30, Vistra (NYSE:VST) reported a mixed performance. The company reported a net income of $467 million, slightly lower than the $476 million recorded in the same period in 2023. However, the company’s ongoing operations net income, which reflects its core business activities, improved significantly, rising to $492 million from $409 million in 2023. Additionally, ongoing operations Adjusted EBITDA, a key measure of profitability, showed strong growth, increasing by 40% to $1.41 billion compared to $1.0 billion in the same period last year. This suggests that the company’s business performance has strengthened, despite the slight decline in overall net income.
Vistra’s (NYSE:VST) stock surged by almost 175% over the last 12 months. This remarkable growth can be attributed to the company’s strategic positioning in the energy market, driven by the growing demand for power, especially from AI and data centers. The company’s recent acquisition of Energy Harbor expanded its nuclear capabilities and has been a significant catalyst to position the company as a leader in clean and reliable energy. The company is expected to grow its earnings by 40% this year. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $110.26, which represents approximately 30% upside potential from its current level.
Vistra’s (NYSE:VST) involvement with AI goes beyond just supplying power, the company has also implemented AI technologies within its operations to enhance the efficiency of its power plants, improve thermal efficiency, and reduce carbon emissions. An example of this is the Heat Rate Optimizer (HRO), an AI initiative that has helped the company save millions in operational costs. This makes Vistra (NYSE:VST) an attractive choice for data centers that require reliable and clean energy sources.
In the 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.”
Vistra’s (NYSE:VST) strategic investments in clean energy, its ability to leverage AI and capitalize on market dynamics present a compelling investment opportunity for investors looking to benefit from the ongoing energy transition. Vistra (NYSE:VST) has a market cap of $28.27 billion as of August 20. As of the second quarter, the stock is held by 93 hedge funds with stakes worth $4.03 billion. Lone Pine Capital is the largest shareholder in the company and has stocks worth $587.93 million as of June 30.
Overall VST ranks 1st on our list of the best alternative fuel 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.
