Biden plans to cut greenhouse gas emissions. These stocks will win, says Morgan Stanley

Published Sat, Apr 24 20218:14 AM EDT

The Biden administration is developing its climate change policies, and a range of companies across sectors will likely benefit as these initiatives unfold, said Morgan Stanley. "As both domestic and global policy continues to evolve, we see a multi-decade secular tailwind for companies that can most efficiently decarbonize the economy," the firm said Friday in a note to clients. The call follows Biden's Thursday announcement of a new target for the U.S. to cut greenhouse gas emissions by at least 50% by the end of the decade. Also last week Biden convened 40 world leaders for a two-day climate summit, in a move underscoring the country's commitment to climate change-curbing policies going forward. The new emissions target follows heavy spending for climate-related initiatives unveiled in Biden's more than $2 trillion infrastructure plan. "Rising demand to decarbonize offers one of the most powerful secular themes in the market ... we see a growing demand outlook for not only renewable energy solutions, such as wind & solar, but some of the potentially more transformative decarbonization technologies, such as carbon capture and storage," Morgan Stanley said. The firm scanned its coverage universe and gave its top picks across multiple sectors: utilities and clean tech, autos and shared mobility, multi-industry and energy. Clean tech Within clean tech Sunrun is Morgan Stanley's top pick. The firm called the company a "best-in-class rooftop solar and storage developer," and noted that "significant value" has already been accrued from current customers. The firm also pointed to a "growing 'economic wedge' of rising utility costs and falling costs for RUN" as upside catalyst for the company. After the recent pullback for the clean tech sector broadly, Morgan Stanley said other names including SolarEdge and Atlantica Sustainable Infrastructure also look attractive at current levels. Autos & shared mobility Electric vehicle supplier Aptiv is Morgan Stanley's top pick in the autos and shared mobility sphere. The firm said the Dublin-based company's growth is "underappreciated," while also pointing to its exposure to "secular tailwinds in EVs and autonomous vehicles." Biden's infrastructure plan includes $174 billion to build out the electric vehicle industry. With supportive policy tailwinds, Morgan Stanley also favors General Motors , Tesla and Fisker , and rates each stock at overweight. The firm called Fisker "one of the most de-risked and strategically underpinned business models in an increasingly crowded EV start-up field." Utilities Within the utilities sector, Morgan Stanley pointed to American Electric Power Company as an attractive bet for investors seeking exposure to companies involved in decarbonization. The firm has an overweight rating on the Ohio-based company. Exelon Corporation and AES Corporation are also on the firm's buy list. Looking forward, Morgan Stanley said that investors will reward companies seeking to make their operations greener. "Faster decarbonization is highly correlated with faster EPS growth, and...ESG interest continues to revolve around 'rate of change' rather than absolute carbon emissions," the firm said. Multi-industry Heavy industry is key to a cleaner future, but it also includes some of the hardest areas to decarbonize. Morgan Stanley said Johnson Controls International stands out. The firm envisions investments in higher-efficiency HVAC systems growing by $140 billion over the next 15 years to roughly $350 billion. "We believe these investments will generate cumulative savings of > $325 billion and reduce carbon emissions by 1.7 gigatons over the same time frame," the firm said. In addition to Johnson Controls, the firm also favors Trane Technologies and Carrier Global . Energy Morgan Stanley called Occidental its top pick among energy companies with exposure to the decarbonization theme. However, the firm rates the stock at equal-weight. Morgan Stanley's optimism around Occidental stems from the company's involvement in emissions-reducing technologies including carbon capture. Morgan Stanley believes the carbon-capture market will jump to roughly $225 billion by 2050. The firm also highlighted Exxon and Chevron , both of which it rates at overweight. "Global scale across the energy value chain (including global fuels distribution networks) offers a key competitive advantage to advance underinvested areas of the energy transition — such as carbon capture (CCS), hydrogen, and renewable fuels," the firm said. - CNBC's Michael Bloom contributed reporting.

Solar panels on a solar farm.

Victor De Schwangerg | Science Photo Library | Getty Images

The Biden administration is developing its climate change policies, and a range of companies across sectors will likely benefit as these initiatives unfold, said Morgan Stanley.

"As both domestic and global policy continues to evolve, we see a multi-decade secular tailwind for companies that can most efficiently decarbonize the economy," the firm said Friday in a note to clients.

The call follows Biden's Thursday announcement of a new target for the U.S. to cut greenhouse gas emissions by at least 50% by the end of the decade. Also last week Biden convened 40 world leaders for a two-day climate summit, in a move underscoring the country's commitment to climate change-curbing policies going forward.

The new emissions target follows heavy spending for climate-related initiatives unveiled in Biden's more than $2 trillion infrastructure plan.

"Rising demand to decarbonize offers one of the most powerful secular themes in the market ... we see a growing demand outlook for not only renewable energy solutions, such as wind & solar, but some of the potentially more transformative decarbonization technologies, such as carbon capture and storage," Morgan Stanley said.

The firm scanned its coverage universe and gave its top picks across multiple sectors: utilities and clean tech, autos and shared mobility, multi-industry and energy.