Goldman Sachs has a different way to play the energy transition — and picks 3 stocks to cash in

Published Mon, Feb 7 20226:35 PM EST

While the likes of hydrogen and wind have been touted as the long-term future of the clean energy transition, Goldman Sachs thinks electrification is a "more immediate" alternative. The bank has named a number of global stock picks it says will benefit from a "much more electric" future. The bank said the "urgency of electrification" is poised to revolutionize European economies. In a note on Jan. 24, Goldman's analysts, led by Alberto Gandolfi, said a major electrification process was the most effective way for the region to reach its target of reducing net greenhouse gas emissions by at least 55% by 2030. "We estimate a 50% increase in power consumption to 2030. By then, electricity could represent [about] 50% of total European primary energy consumption, vs [about] 20% today," Gandolfi added. With 3.7 trillion euros ($42.3 trillion) of capital expenditure required to meet this goal, Goldman said this provides an "attractive backdrop" for green energy stocks, boosting their appeal to investors. Stock picks German energy firm RWE — the world's No. 2 offshore wind power provider and Europe's third largest in renewable energy — is one of three stocks favored by Goldman in this space. The separation of the company's activities involving lignite (also known as "brown coal") — expected to occur this year —will "greenify" RWE's portfolio and expose its "deep valuation discount" to pure renewable players, Gandolfi said. Meanwhile, Germany's recently announced climate plan, as well as supportive power prices, should result in stronger-than-expected earnings growth, he added. The bank expects the company to post compounded earnings per share (EPS) growth of 11% into 2027. It has a price target of 52 euros on the stock, which closed at about 37 euros on Feb. 4, representing a potential upside of 41%. Italian energy firm Enel also makes Goldman's list. The bank expects the company to deliver earnings growth of about 20% this year and high-single-digit annual EPS growth into 2026. The company is also expected to partially rotate its exposure out of Latin America into developed economies, which the bank views as a positive move. Goldman thinks Enel's stock price has further upside ahead. The bank has ascribed a price target of 10.85 euros on the stock, which implies a potential upside of 63.4% based on the stock's closing price of 6.64 euros on Feb. 4. Rounding off the list is Spanish utility firm Iberdrola , which Goldman expects to deliver annual high-single-digit EPS growth into 2027. The bank is about 5% above consensus on the company's earnings into 2024, Gandolfi said. He added that the company is accelerating capital spending in Europe and could potentially do so in the U.S. as well. The bank has price target of 14 euros on the stock, which implies a potential upside of 44.3% to its closing price of 9.70 euros on Feb. 4.

High-voltage power lines at sunset.

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