Invest in the renewable future with these old-school energy stocks, says Wells Fargo

Published Tue, Jun 8 202112:07 PM EDTUpdated Tue, Jun 8 20211:02 PM EDT

Talk of the energy transition evokes images of wind turbines gently spinning in the breeze, but there's also a big opportunity for traditional oil and gas companies amid the push for renewables. As investment across the space heats up, Wells Fargo compiled a list of "traditional" energy companies that are devoting more resources toward carbon-reducing technologies, including renewable fuels, carbon capture utilization and storage, R & D efforts, technology seed funds and direct investments. These companies do, of course, continue to generate the vast majority of their revenue from fossil-fuel based operations, but some believe the firms' large research departments and existing infrastructure give them a head start in areas like carbon capture. Wells Fargo's list of best ideas includes BP , which it said "clearly leads the energy transition with the biggest strategy shift." "BP has slashed its oil and gas exploration team and budget. Through dispositions and depletion, production should steadily decline through 2030," the firm said in a note. Wells Fargo has an overweight rating on the stock. BP is one of the few oil companies to outline a goal toward net-zero emissions by 2050, and CEO Bernard Looney has said the company will cut oil and gas production by 40% over the next decade. Still, Wells Fargo noted that there are investor questions about whether this will come to fruition. This led the firm to name Valero as its top pick for an oil and gas company moving toward reducing carbon emissions. Specifically, Wells Fargo pointed to the refiner's footprint in renewable fuels and carbon capture. "Altogether VLO's renewable fuel production has replaced around 120,000 [barrels per day] of oil-based fuels. In addition, VLO's recent announcement of plans to capture and store CO2 emissions from several of its ethanol plants opens a new door in the energy transition process," the firm said in rating Valero stock as overweight. Within the midstream sector, Wells Fargo pointed to Enbridge Energy as a leader. The firm noted that the Canada-based company was "ahead of the energy transition curve" after building wind farms in 2002 and transporting renewable natural gas since 2011. More recently, the company has explored the hydrogen opportunity. "Given this track record, we believe ENB is well positioned to pivot to renewables over time in a way that does not sacrifice shareholder returns," analysts led by Michael Blum wrote. "By casting a wide net of various renewable