JPMorgan names its top clean energy stocks for 2022

Published Wed, Dec 8 202111:54 AM EST

JPMorgan is out with its top alternative energy stock picks for 2022 after a volatile year for the industry, driven in part by valuation concerns and supply chain issues. The Invesco WilderHill Clean Energy exchange-traded fund is down nearly 22% for 2021, while the S & P 500 has advanced roughly 25%. Still, JPMorgan believes the energy transition represents a compelling opportunity for investors, noting that despite headwinds in 2021 the industry still exhibited growth. "This growth in 2021, following strong growth in 2020, despite COVID impacts to the overall economy, provides us with the highest level of conviction regarding the secular growth and profitability for the sector in our approximately ten years of covering this space," JPMorgan said in a Dec. 7 note to clients. "This growth trend has been increasingly driven by merit-based, economic decisions as solar and wind have come in-the-money vs grid-pricing in most regions of the world," the firm added. Sunrun is one of JPMorgan's top picks for 2022. The company is the largest residential solar installer in the U.S. During the third quarter of 2021 , Sunrun's customer count surged above 600,000. The firm said the company's stock looks attractive on both a near- and long-term basis. "We expect a strong y/y rebound in profitability per customer during FY22, and for the company's cash generation abilities to come into better focus for investors," said JPMorgan's Mark Strouse. He added that the company's currently elevated inventory position means it can weather any lingering impacts from supply chain disruptions. "RUN is also a top long-term pick owing to its exposure to the high-growth U.S. residential solar market, decreasing financing spreads and customer acquisition costs, and increasing storage attach rates and grid services opportunities," Strouse wrote in the report. Shares of the company are down 35% for 2021. Array Technologies is JPMorgan's other top stock to watch for 2022 within the renewable energy ecosystem. The company makes the racking infrastructure that supports solar systems, while its software tilts the panels throughout the day to make sure they are maximizing energy production. The stock is down nearly 58% this year, partially due to the company's high exposure to rising steel prices. Additionally, on Nov. 30 Array announced plans to raise capital in order to finance an acquisition, which sent the stock tumbling more than 20% in a single session. Strouse noted that after 2021's jump in commodity prices Array has now added language to customer contracts that protects it against rising input costs in the future. "[T]he company's backlog has continued to grow since these changes were made in May 2021, implying no negative impacts on demand," the firm said. "We believe the company's margins should therefore rebound significantly, returning to historical levels by mid-22," Strouse added. He also pointed to Array's international growth opportunity after the company acquired Spain-based Soluciones Técnicas Integrales Norland, S.L. While JPMorgan remains bullish on renewable energy looking forward, the firm did note that investors should expect volatility. "Investing in this theme is not for the faint of heart given relatively high swings in investor sentiment and technology/business models that are still in development," JPMorgan said. - CNBC's Michael Bloom contributed reporting.

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JPMorgan is out with its top alternative energy stock picks for 2022 after a volatile year for the industry, driven in part by valuation concerns and supply chain issues.

The Invesco WilderHill Clean Energy exchange-traded fund is down nearly 22% for 2021, while the S&P 500 has advanced roughly 25%.

Still, JPMorgan believes the energy transition represents a compelling opportunity for investors, noting that despite headwinds in 2021 the industry still exhibited growth.