Three stocks to play in a low-carbon emissions world, according to Credit Suisse

Published Sat, Mar 13 20219:04 AM EST

Green companies have encountered some weakness this year amid concerns over stretched valuations and rising inflation, but Credit Suisse believes the bull case for the group is intact. "The long term growth drivers for Green themes remain highly compelling," the firm said Friday in a note to clients. "We see the retracement in most of the themes since the start of the year as a good opportunity for investors to (re)engage with them." Credit Suisse believes the growth outlook for the group is "second to none" due to the investment needed to reach climate change targets — $3 trillion annually, or more than four times current levels. The firm outlined several key themes to watch including solar, energy efficiency and hydrogen, and listed its highest conviction stock ideas related to each theme. Solar Credit Suisse expects ongoing demand growth for solar, thanks to consumer interest in sustainable energy as well as attractive economics. Supportive policies should also boost growth. Action from President Joe Biden could accelerate renewable demand growth rates by two times current projections for the next 15 years, the firm said. Residential and utility-scale solar both look attractive, but the firm's top pick in the space is Sunrun , which is the largest residential solar developer in the U.S. Shares of the company are down 25% over the last month amid weakness across the clean tech space, and Credit Suisse believes the downturn creates an entry point for investors. Analyst Michael Weinstein sees the stock rising to $81, which is about 30% above where shares closed on Friday. The firm added that Sunrun's exposure to the energy storage theme through its solar plus battery offering should drive further gains. The stock is up more than 450% over the last 12 months. Energy efficiency Nearly 40% of greenhouse gas emissions come from buildings, meaning it's a key target area within the broader decarbonization theme. Energy usage in buildings can be reduced by 50%, according to data from the International Energy Agency, which would also lead to substantial cost savings for building managers. Biden outlined a $2 trillion climate and infrastructure plan last July, which includes retrofitting four million commercial buildings. This figure is significant, since it represents roughly 70% of commercial buildings across the country, according to the latest data from the U.S. Energy Information Administration. Biden has also called for stricter building-performance standards nationwide and said that all new commercial buildings should be net-zero emissions by 2030. This will likely translate to increased demand for energy efficiency applications, including those offered by Johnson Controls . Credit Suisse pointed to the company's credible path toward sales growth acceleration through new product offerings, as well as margin expansion through cost reductions. The company's recently launched OpenBlue platform, which harnesses decades of insights into the functionality of buildings, represents a new market opportunity worth as much as $15 billion. Shares of the company have gained 32% this year, and are up 88% over the last 12 months. Hydrogen Credit Suisse noted that within the decarbonization theme, companies exposed to hydrogen are among those poised for the highest growth. So-called "green hydrogen," or hydrogen produced by renewable-powered water electrolysis, can be used to decarbonize high-emission sectors including heavy duty transport and industrial heat. Pennsylvania-based Air Products and Chemicals is one of the largest global industrial gas producers, and the company is focused on becoming the leader in green hydrogen used for mobility. "APD will benefit from further capital deployment focusing on large projects at > 10% ROICs [return on invested capital], which should help sustain double-digit EPS growth over the [long term]," wrote Credit Suisse analyst Christopher Parkinson. "We sense investor expectations are the lowest they've been in years, rendering a favorable risk/reward," he added. Credit Suisse has a $302 target on the stock, which is nearly 11% above where shares closed on Friday. The stock is flat for 2021, but up 32% over the last year. - CNBC's Michael Bloom contributed reporting.

DiyanaDimitrova | iStock | Getty Images

Green companies have encountered some weakness this year amid concerns over stretched valuations and rising inflation, but Credit Suisse believes the bull case for the group is intact.

"The long term growth drivers for Green themes remain highly compelling," the firm said Friday in a note to clients. "We see the retracement in most of the themes since the start of the year as a good opportunity for investors to (re)engage with them."

Credit Suisse believes the growth outlook for the group is "second to none" due to the investment needed to reach climate change targets — $3 trillion annually, or more than four times current levels.

The firm outlined several key themes to watch including solar, energy efficiency and hydrogen, and listed its highest conviction stock ideas related to each theme.