Wall Street analysts pick stocks to cash in on a potential $1 trillion energy opportunity

Published Sun, Apr 25 20218:00 PM EDT

Sam Meredith @in/samuelmeredith @smeredith19

Analysts on Wall Street believe a "hidden" investment opportunity in the energy sector could be instrumental as the world attempts to transition away from fossil fuels. Carbon capture and storage — known as CCS — capacity could grow nearly 100-fold by 2050, according to Bank of America . Analysts at the bank said cumulative investment in the industry could hit $1 trillion by 2050, according to its more optimistic estimates. Hitting this milestone is likely to be led by the U.S. and Northern Europe, according to the bank, while China's pledge to hit net-zero emissions by 2060 is seen driving adoption of the technology in Asia. Morgan Stanley and Goldman Sachs also recognize that CCS is an evolving technology with the potential to go from strength to strength. Here are some of the top stocks in the sector that analysts expect to outperform: Bank of America analysts say Norway's Aker Carbon Capture is "a unique pure-play" carbon capture company, with 60% upside potential to its current share price. The bank has a buy rating on the stock. Analysts at Bank of America and Goldman Sachs both have a buy rating on Aker Solutions . The Norwegian firm is thought to be "well positioned" with engineering, procurement and construction services in areas like carbon capture. Aker Solutions, a separtely listed comany, provides financial support to Aker Carbon Capture. Analysts at Morgan Stanley are overweight on ConocoPhillips , noting the energy company has expressed a direct desire to invest in CCS as part of a low-carbon strategy. Morgan Stanley says Chart Industries , headquartered in the state of Georgia, is emerging as a "uniquely positioned key supplier of high-tech equipment" among various decarbonization solutions, notably carbon capture. It is overweight on the stock. Goldman Sachs believes Occidental Petroleum 's expertise in enhanced oil recovery provides a "unique" opportunity to apply carbon capture technologies to generate new sources of earnings. Morgan Stanley is equal weight on the stock, but says the oil and gas firm offers the "most direct exposure" to CCS across its U.S. energy coverage. Morgan Stanley is overweight on Exxon Mobil , recognizing that the oil giant has committed to investing $3 billion on emission energy solutions through to 2025, initially focusing on CCS and hydrogen. Bank of America singled out Texas-based Baker Hughes as one company expected to benefit from increased investment into CCS. Morgan Stanley, which is overweight on the stock, lists the firm as one of its top picks in oil services with exposure to carbon capture. Alongside Baker Hughes, Morgan Stanley lists oil services giant Schlumberger among its top picks with exposure to CCS. The bank is overweight on the stock, liking the firm's "capital-light approach" to positioning for the transition to low-carbon. Analysts at Morgan Stanley are also overweight on Chevron , citing the oil and gas company as among those to have led the way with investment into CCS technologies. It notes that Chevron sees CCS as an underinvested area of the energy transition. Morgan Stanley is overweight on Texas-based Diamondback Energy , following the firm's pledge to potentially co-invest in CCS. It sees Diamondback Energy as one of the most exposed stocks to increased investment in carbon capture. The process of carbon capture and storage consists of separating carbon dioxide from waste gases and permanently storing it underground, in old oil and gas fields, for instance. Energy giants have lauded the often-overlooked technology in recent years, claiming it could help to play a critical role in the journey to net zero emissions by 2050. Environmental groups and climate activists dispute this theory, however, saying the climate emergency demands an urgent and wholesale switch away from fossil fuels. In a note called "Carbon Capture: A Hidden Opportunity?", Morgan Stanley analysts argued that the U.S. was well placed to play a leading role in the development of the technology. "Relative to European peers, US Energy companies have lagged on the advancement of sustainability strategies … However, a shift, led by the US majors, is underway," the analysts wrote. "Carbon capture and storage has received a wave of investment from US Energy … Unlike some low carbon technologies, such as solar and wind, US Energy has a foothold in CCS development."

Technicians inspect the direct air capture system at the Carbon Engineering Ltd. pilot facility in Squamish, British Columbia, Canada, on Monday, Nov. 4, 2019.

James MacDonald | Bloomberg | Getty Images

Analysts on Wall Street believe a "hidden" investment opportunity in the energy sector could be instrumental as the world attempts to transition away from fossil fuels.

Carbon capture and storage — known as CCS — capacity could grow nearly 100-fold by 2050, according to Bank of America. Analysts at the bank said cumulative investment in the industry could hit $1 trillion by 2050, according to its more optimistic estimates.

Hitting this milestone is likely to be led by the U.S. and Northern Europe, according to the bank, while China's pledge to hit net-zero emissions by 2060 is seen driving adoption of the technology in Asia.

Morgan Stanley and Goldman Sachs also recognize that CCS is an evolving technology with the potential to go from strength to strength.

Here are some of the top stocks in the sector that analysts expect to outperform: