UBS names 7 stocks set to pop on the green hydrogen theme

Published Sun, Aug 15 20218:00 PM EDT

Sam Meredith @in/samuelmeredith @smeredith19

Analysts at UBS have picked a host of stocks they believe to be the best positioned to capture the massive potential of green hydrogen, citing the technology as pivotal to efforts to transition to low-carbon energy sources. To play this trend, the Swiss bank names firms in the U.S., Asia and Europe. "Low-carbon hydrogen is central to national net-zero targets globally, and the number of companies announcing hydrogen strategies has been growing. To put the potential into an APAC perspective, we think hydrogen could play a much larger role in the energy mix than the 12% occupied by natural gas today," analysts at UBS said in a research note published on Aug. 5. It comes at a time when world leaders and CEOs are under immense pressure to enact policies that meet the demands of a deepening climate emergency. This includes immediate action on energy , with U.N. Secretary-General Antonio Guterres calling for the IPCC's landmark climate report to " sound a death knell " for coal, oil and gas. The intensifying need to transition away from fossil fuels has ramped up interest in low-carbon alternatives, and analysts at Wall Street's biggest banks see the growth potential for green hydrogen as a " once-in-a-generation opportunity ." In the production of green hydrogen, an electric current is used to split water into hydrogen and oxygen using electricity from a renewable source, such as solar or wind. It is referred to as "green" because water as a feedstock is considered clean and the electricity is generated from a renewable source. UBS believes the sectors best positioned to capture opportunities in hydrogen include renewable energy, integrated oil and gas, shipyards and diversified equipment supplies. Analysts at the bank singled out the steel industry as one that may face the largest risks given so-called green steel could require a carbon tax. Stock picks One of the bank's most favored stocks in the renewable energy space is China's Longyuan Power Group . UBS has a buy rating on China's largest wind power producer and says the operator could benefit from higher generation volume and margin expansion. In the shipyard space, UBS singles out Korea Shipbuilding & Offshore Engineering as one of its preferred stocks. The South Korean company, which is a leader in global shipbuilding, is "working actively" to develop green shipping technology, the bank said. UBS has a neutral rating on the stock. U.S. automaker General Motors and Germany's Volkswagen were highlighted as buy options in the global autos industry, according to UBS. For the former, analysts at the bank said its legacy position as a leading original equipment manufacturer in electric vehicles and autonomous vehicles was an attractive proposition. Volkswagen, meanwhile, was thought to have the most aggressive EV strategy and has the biggest EV re-rating opportunity, UBS said. U.S. conglomerate General Electric was said to be well-positioned to benefit from a decarbonization drive in the global electrical equipment industry. This was as a result of benefits for increased demand for wind energy in GE's portfolio. It also has an important transition role for gas turbines as they offer "optionality" toward net-zero carbon emissions, UBS said. It has a buy rating on the stock. Of the bank's most favored stocks in global oil and gas, analysts at UBS highlighted Anglo-Dutch oil giant Royal Dutch Shell . With a buy rating on the stock, UBS said the company is a promoter of hydrogen through its marketing supply chain and is involved with a number of large-scale green hydrogen projects, such as NortH2, Refhyne and Rotterdam Green Hub. In global oil and services, UBS acknowledged the broader decarbonization theme poses both opportunities and threats to the industry. However, U.S. energy services firm Baker Hughes is among its most favored stocks. The company has leading turbomachinery technology that reduces emissions, enhance performance and optimize operations, UBS said. The bank has a buy rating on the company.

Oil pipelines near the Wesseling green hydrogen refinery, operated by Royal Dutch Shell Plc, in Wesseling, Germany, on Friday, July 2, 2021. Europe is pinning its green hopes on hydrogen in an unprecedented economic overhaul that aims for the region to reach climate neutrality by 2050.

Alex Kraus | Bloomberg | Getty Images