Goldman says now's the time to buy these 3 stocks — including one it says has upside of nearly 40%

Published Sun, Apr 3 20229:25 PM EDT

Goldman Sachs just upgraded three stocks to "buy" as Europe doubles down on energy self-sufficiency. "Europe is experiencing a severe energy crisis. In a scenario of prolonged geopolitical tensions, we estimate the region could face a 1.4 trillion euros ($1.54 trillion) rise in energy costs (gas, power), equivalent to nearly 10% of the EU's GDP," Goldman's analysts, led by Alberto Gandolfi, said in a research note on Mar. 30. The bank estimates that power and gas bills in Europe have risen about 150% since bottoming in 2020, with natural gas prices rising on the back of a tight market and geopolitical tensions. Against this backdrop, Goldman views renewables as "pivotal" in Europe's energy security. A European Union proposal to make the bloc independent from Russian fossil fuels before 2030 — dubbed the REPowerEU — will accelerate wind and solar investments to drive a double-digit increase in renewables profits by 2030, Gandolfi said. "We flag the pivotal role of wind/solar as security of supply tools, helping electrify/degasify Europe and boost the region's energy self-sufficiency," he added. Stock picks Within the renewables space, Goldman likes German energy firm RWE , which the bank says will meaningfully benefit from the looming energy crunch in Germany, as well as the increased focus on energy supply security. The bank believes the company will capture 5-10% of domestic renewables investments, which will contribute an additional 1.5 billion to 3 billion euros ($1.6 billion to $3.3 billion) in earnings to the company, according to Goldman. In addition, the bank sees further upside for the company from incremental investment in green hydrogen turbine plants or biomass power stations, while a spin-off of its lignite (brown coal) assets will free up capital to support RWE's domestic investment plan, Gandolfi said. Goldman has a price target of 52 euros on the stock, representing a 31.3% potential upside to the stock's closing price of around 39.6 euros on Mar. 31. Portuguese utility company EDP is another Goldman favorite, with the bank viewing the company as an "attractive entry point" into renewables, given the approximately 45% discount that its wind and solar subsidiary enjoys relative to the market price. The bank also sees the company achieving compounded double-digit earnings per share growth in its clean energy segment into 2027 on the back of its 25 billion euros capital expenditure plan in wind and solar. In addition, Goldman sees medium-term earnings guidance upgrades as the REPowerEU plan is likely to lead to a more rapid conversion of the company's existing pipeline into operating capacity, Gandolfi said. Goldman's price target of 6.05 euros on the stock implies a 37.5% upside to its closing price of 4.4 euros on Mar. 31. Read more Treasury Secretary Yellen: The U.S. should have moved faster toward renewable energy Morgan Stanley says buy these stocks with energy security and the transition to renewables in focus Rounding off Goldman's picks is California-based solar panels manufacturer Solaria , with the bank viewing the company as an "increasingly strategic" asset. "We believe Europe's inflection in its energy policy goals – now prioritizing security of supply – will provide major tailwinds to renewable activities," Gandolfi said. He believes solar may be the main beneficiary of this inflection in EU priorities as solar permits are easier to obtain relative to its wind counterparts. Goldman estimates that the company's solar capacity could increase nearly ninefold from 0.8GW in 2021 to 6.5GW in 2026. The company is also expected to benefit from a normalization in supply chain this year, which will normalize capital costs for Solaria, according to Goldman. Goldman has ascribed a price target of 25 euros on the stock, which closed at 20.4 euros on Mar. 31 — an implied upside of 22.5%.

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Goldman Sachs just upgraded three stocks to "buy" as Europe doubles down on energy self-sufficiency.

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