Analysts at Morgan Stanley have named a slew of U.S. and global stocks they believe will benefit most from the so-called energy transition, providing investors with a way to cash in on a "significant" investment opportunity. The Morgan Stanley note, called "Going Green Across the Board," comes amid an urgent push to hasten the shift away from fossil fuels to avert a looming climate emergency. In August, a sweeping report by the Intergovernmental Panel on Climate Change laid bare the severity of the climate crisis , with U.N. Secretary-General António Guterres describing the report as "a code red for humanity." As things stand, the world's fossil fuel dependency is expected to get even worse in the coming decades — and it is against this backdrop that the potential investment case for decarbonization technologies has come into renewed focus. "The investment opportunity to fund the US energy transition is significant, with [more than] $1.2 trillion in total spend necessary by 2030 in order to meet goals set in the Paris Climate Change Agreement, of which we estimate [around] $1.1 trillion is technically feasible," the Morgan Stanley analysts wrote on Sept. 30. "Relatively few investors are assessing the entire spectrum of decarbonization technologies, and we believe investors can generate alpha from such a broad based approach, especially as energy policy in the US evolves." Federal legislation and subsidies could further lower costs and improve the economics of adoption, the analysts, led by Stephen C Byrd, added. They named stocks with exposure to clean technologies that they determine as having significant near-term economic attractiveness. All of their picks are overweight-rated by the bank. Stock picks Green hydrogen is highlighted as one of the most promising technologies in the space by Morgan Stanley. Federal support could further boost its outlook, with the bank characterizing the potential support as a "game changer" for the burgeoning hydrogen market. Its stock picks with exposure to the technology include oil major Chevron , industrial gas supplier Linde , and Canadian natural gas distributor Enbridge . Morgan Stanley also sees strong growth in the electrification of transport, noting that "electrifying mobility is a long-duration theme with many stocks with favorable exposure." While automakers such as General Motors and Ford offer direct plays on this theme as they transition to electric vehicle production, the Wall Street firm also likes "technology and supply chains providers as well as transportation fleet operators" as attractive proxies. Morgan Stanley's picks exposed to this theme include Aptiv , a developer of smart automotive software and systems, and a key supplier to Tesla . Other names include EV automaker Fisker , which Morgan Stanley likes as a design and engineering partner for battery EVs, as well as renewable battery solutions provider Freyr . Tesla is the bank's top pick for a direct play on automakers, given the company's leading position in the EV ecosystem. Investors looking for stocks with exposure to multiple decarbonization technologies should consider clean tech company SolarEdge and solar solutions provider Sunrun , according to the analysts. They tip both as beneficiaries of the adoption of renewables and energy storage. Noting that renewable energy and energy storage already enjoys a lower cost than incumbent energy sources throughout most of the U.S., the analysts said the strong growth prospects of these stocks have not been fully priced in. Other companies with exposure to multiple technologies include Quantumscape , a startup working on the development of solid-state lithium metal batteries for electric vehicles. It has exposure to energy storage and vehicle electrification, the analysts said. They also named wind-blade manufacturer TPI Composites for its exposure to renewables and vehicle electrification.
Tanks of hydrogen stand near a hydrogen electrolysis plant.
Bloomberg | Bloomberg | Getty Images
Analysts at Morgan Stanley have named a slew of U.S. and global stocks they believe will benefit most from the so-called energy transition, providing investors with a way to cash in on a "significant" investment opportunity.
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