Goldman picks 9 renewable energy stocks set to rebound after falling up to 40%

Published Thu, Mar 11 20212:54 AM ESTUpdated Fri, Mar 26 20213:07 AM EDT

Sam Meredith @in/samuelmeredith @smeredith19

Goldman Sachs believes it is time for investors to rotate back into renewable energy majors, describing current price levels as a "compelling entry point." The investment bank said shares in the sector had dropped by an average of roughly 20% since an early January-peak, with some falling as much as 40%. This move lower among Green Energy Majors (or GEMs) in recent weeks was most likely triggered by higher inflation expectations, anxiety over the prospect of rising interest rates and a rotation out of capital intensive, secular growth industries, the analysts said in a note published Sunday. Nonetheless, Goldman analysts reaffirmed their confidence in the potential for GEMs and argued there was growing evidence to support their investment view. Here's a list of buy-rated stocks they expect to outperform: Solaria : The renewables group has seen its share price tumble more than 40% since early January, caught up in the middle of what Goldman described as the "3Rs": Reflation, rising rates and rotation into short-term cyclicals (cyclical stocks are tied to the economic cycle, and tend to do better when the economy improves). Positive developments in the firm's full-year results, however, prompted the bank to upgrade the stock to a buy rating from neutral. EDP : Goldman said this GEM "remains one of the few pure plays on global renewables growth." Analysts at the bank said a recently strengthened balance sheet combined with a strong execution track record could see the company achieve double-digit growth in renewables earnings before interest, taxes, depreciation and amortization over a five-year period though to 2030. EDPR : The world's third-largest wind energy producer has slipped almost 40% since its early January peak, but analysts at Goldman remain bullish on the stock. They reiterated their buy rating in a research note, citing the Madrid-headquartered firm's growth outlook for the coming five years. RWE : Goldman said the market is overlooking two important factors when it comes to this German multinational energy company. It said RWE's scope to double its annual wind and solar additions and the ability to ring-fence lignite (coal) activities supported its buy rating on the stock. Enel : The U.S. bank remains buy-rated on Enel, citing "secular tailwinds" amid the energy transition, ongoing deleveraging and a more than 90-gigawatt gross pipeline of renewable projects that are expected to make it the largest renewable developer in the world. SSE : Headquartered in Scotland and listed on the London stock exchange, SSE remains a buy for analysts at Goldman. They suggested the company could potentially realize the full value of its renewables business with the sale of a 25% minority stake. Iberdrola : Spanish utility Iberdrola is likely to close the valuation gap to its fully regulated peers over time, analysts said, and potentially become a premium asset. Goldman has a buy rating on the stock. Orsted : The bank said that while other GEMs have more share price upside potential than the Danish multinational power company, the firm still trades "well below" its base case valuation. Returns are expected to remain attractive going forward, Goldman said. Endesa : The analysts said a strong cash yield, robust 2020 earnings and the likely acceleration in renewables underpinned its buy rating on the Spanish firm. They also noted the electric utility company continues to trade at a "significant" discount to its peers. "Most Green Energy Majors no longer price in any value for future growth, over and above what is already under construction," analysts at Goldman, led by Alberto Gandolf, said in the research note. It explained that pricing in zero, or near zero, for future growth constitutes a "compelling entry point" for renewable energy majors and current valuations implied "no or very limited downside risk from here." "We believe it is time to rotate back into the space," the analysts said.

An aerial view of wind turbines in western Germany on May 8, 2020.

Ina Fassbender | AFP | Getty Images

Goldman Sachs believes it is time for investors to rotate back into renewable energy majors, describing current price levels as a "compelling entry point."

The investment bank said shares in the sector had dropped by an average of roughly 20% since an early January-peak, with some falling as much as 40%.

This move lower among Green Energy Majors (or GEMs) in recent weeks was most likely triggered by higher inflation expectations, anxiety over the prospect of rising interest rates and a rotation out of capital intensive, secular growth industries, the analysts said in a note published Sunday.

Nonetheless, Goldman analysts reaffirmed their confidence in the potential for GEMs and argued there was growing evidence to support their investment view.

Here's a list of buy-rated stocks they expect to outperform: