Alternative energy stocks are on a tear and there's more upside ahead, says JPMorgan

Arrays of photovoltaic solar panels are seen at the Tenaska Imperial Solar Energy Center South in this aerial photo taken over El Centro, California, U.S., May 29, 2020. Picture taken with a drone.
Bing Guan | Reuters

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Alternative energy stocks, including those focused on solar, are on a tear this year due to falling costs as well as optimism around supportive policies from a Biden administration, and JPMorgan believes there's more upside ahead.

"Long-term fundamentals for the overall space remain compelling, and we think the industry is more suited to long-term investors than at any prior time during our coverage," the firm said in a recent note to clients.

JPMorgan noted that the stocks in its alternative energy coverage universe have gained, on average, more than 130% this year compared with the S&P 500's roughly 7% rise. Still, the firm said the risk-reward continues to look favorable, especially for companies involved in distributed power generation.

Biden has outlined a $2 trillion climate and infrastructure plan that would push the U.S. to carbon-free power by 2035, with the country reaching net zero emissions by 2050.

But even if President Donald Trump is reelected, or if Congress remains split, JPMorgan doesn't envision a drop-off for these stocks. The firm said that estimates and industry fundamentals would stay the same, although trading multipls could re-rate to levels seen prior to September's run-up.

Here are some of JPMorgan's top picks ahead of third quarter results:

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