Wall Street banks love these energy stocks — and two are on Goldman's conviction buy list

Published Wed, Mar 30 20227:48 PM EDT

Lucy Handley @in/lucy-handley-b2b0a61a/@lucyhandley

Goldman Sachs and Bank of America have identified their top energy stocks to buy, two of which are on Goldman's coveted conviction list. Goldman focused on stocks it says are set to do well as governments continue to invest in so-called clean energy, while Bank of America forecasts that a rise in gas prices caused by the Russia-Ukraine conflict will boost its top names. "The events of the past two years — a pandemic, multiple energy reliability outages, Russia-Ukraine war as examples — are pushing investors and corporates From Aspiration to Action. We are seeing greater understanding by investors/regulators of the need for Defense, nuclear and (at least as a replacement for coal) natural gas," Goldman's analysts stated in a March 25 note to investors. Investment in green energy skyrocketed in 2021, with almost $70 billion flowing into U.S. sustainable funds, a record figure according to Morningstar . Goldman's recent discussions with companies and investors in the U.S. and U.K. focused on whether capital investment into renewable energy would continue. Goldman's picks "While we believe emissions could increase in the near term if the substitution of Russian natural gas for coal in the power stack were to occur, we believe government capital commitments to stimulate Clean Energy generation and deployment of hydrogen/battery storage could increase as a result," Goldman's analysts, led by Brian Singer, stated. "We have highlighted $6.0 trillion of annual Green Capex needed this decade to support Net Zero, Infrastructure and Clean Water goals, up $2.8 trillion from the $3.2 trillion annual average in 2016-20," the analysts added. Such government commitments are likely to benefit Goldman's buy-rated picks, the bank said, including Enphase in the U.S. and Siemens Gamesa and Vestas in Europe. SolarEdge , a photovoltaic supplier, is on its conviction list of buy-rated stocks, as is ABB , a heavy equipment company. Also on Goldman's list of U.S. stocks to buy are electrical engineers Emerson , Quanta and power management company Eaton . Its European names include cable company NKT and German conglomerate Siemens . BofA's picks Natural gas prices have soared in recent weeks and BofA expects prices to stay "higher for longer." "Europe's quest for energy independence from Russia will further tighten already tight LNG [liquefied natural gas] markets in order to help replace Russia's current 40% share of European consumption," the bank's analysts said in a March 23 note to investors. BofA's picks include oil majors TotalEnergies and Shell , describing them as "medium-term gas winners." "As leading LNG suppliers globally, Shell and TotalEnergies will benefit more profitable LNG contracting driving up profitability structurally into 2030," the bank's analysts stated . The bank also chose British company Harbour Energy , expecting it to be debt-free by the end of the year. It also picked Kosmos , expecting it to hit a "sweet spot," liking its Tortue Phase 2 development, which it says could be a lucrative contract.

Photovoltaic solar panels at a power plant in La Colle des Mees, Alpes de Haute Provence, southeastern France, on April 17, 2019.

Gerard Julien | AFP | Getty Images

Goldman Sachs and Bank of America have identified their top energy stocks to buy, two of which are on Goldman's coveted conviction list.