Clean tech stocks including Sunrun offer upside amid a pullback, Goldman says

Published Tue, May 25 20211:44 PM EDTUpdated Tue, May 25 20211:57 PM EDT

Amid the pullback in shares of clean tech companies, Goldman Sachs identified stocks in the space that have been unfairly hit and still offer attractive upside for investors. The picks the firm identified, which include residential solar developer Sunrun , are also stocks well-represented in funds focused on ESG, or environmental, social and governance factors. Investing around ESG themes continues to be popular, and these funds are attracting more and more capital. Assets under management in sustainability focused funds neared $2 trillion after record inflows during the first quarter, according to data from Morningstar. And that momentum is showing no signs of slowing. Goldman added that the six largest monthly inflows into ESG funds occurred in the past six months, although these funds have encountered some weakness recently. "ESG funds have outperformed category peers on a three, five and ten-year basis, though the last two quarters (4Q20 & 1Q21) have been the first two of consecutive median underperformance in ten years," analysts led by Derek Bingham wrote in a note to clients. But the firm said the pullback represents a buying opportunity, especially for clean tech names, which can hold substantial valuation premiums relative to companies in other areas of the market. In the wake of this "material pullback," Goldman scanned its clean energy coverage universe for buy rated stocks that are well owned by ESG funds and that have dropped at least 13% since the iShares Global Clean Energy ETF hit its most-recent high at the beginning of January. Sunrun is among the names that makes the list, with shares down more than 30% for 2021. The firm has a $69 target on the stock, which implies a 54% jump from Monday's closing price. "We believe RUN's status as a bellwether solar name and clean execution will drive some near-term relief that broader solar industry fundamentals may not be nearly as in duress as the recent stock underperformance would suggest," the firm wrote in a note to clients earlier in May after Sunrun reported quarterly results. Fellow residential installer Sunnova also made the list. Goldman has a $57 target on the stock, meaning the firm believes shares will double over the next year. Shares of the company, which also sits on Goldman's conviction list, are down 37% for the year. Clean tech's 2021 weakness comes after record gains in 2020, leading some to believe valuations had become stretched. Rising rate fears and a broader rotation out of growth-oriented areas of the market have also weighed on the sector. Still, Goldman believes there are plenty of names to like, and also favors Enphase Energy and SolarEdge . The firm has a $187 target on the latter, suggesting 33% upside ahead. Analyst Brian Lee lifted his rating on SolarEdge earlier this month , saying the post-earnings pullback in shares was overdone. He sees the stock climbing 14% over the next year to $290. —CNBC's Michael Bloom contributed reporting.

Sunrun solar.

Source: Sunrun

Amid the pullback in shares of clean tech companies, Goldman Sachs identified stocks in the space that have been unfairly hit and still offer attractive upside for investors.

The picks the firm identified, which include residential solar developer Sunrun, are also stocks well-represented in funds focused on ESG, or environmental, social and governance factors. Investing around ESG themes continues to be popular, and these funds are attracting more and more capital.

Assets under management in sustainability focused funds neared $2 trillion after record inflows during the first quarter, according to data from Morningstar. And that momentum is showing no signs of slowing.