Clean energy had a record year — here are Morgan Stanley's picks going forward

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Aerial view of a wind-solar hybrid photovoltaic power station on Sept. 12, 2020 in Zaozhuang, Shandong province of China.
Li Zongxian | Visual China Group | Getty Images

Clean energy companies had a banner 2020 as favorable economics and widespread investor interest pushed stocks to new highs, and Morgan Stanley believes there's more upside ahead — but investors need to be selective.

"We see very large, multi-decade renewables growth driven by economics, policy support, electrification of other sectors, and green hydrogen," the firm wrote in a note to clients Tuesday. "After strong sector performance, we recommend stocks with lower valuation multiples and strong barriers to entry."

Additionally, the firm recommended that investors look beyond the "first order" stories within the sector, and instead focus on some of the names exposed to the second order growth from the wider trend toward electrification and green hydrogen.

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