HSBC thinks these global energy stocks could be winners — and gives one upside of over 100%

Published Mon, May 9 20227:21 PM EDT

HSBC says a "generational shift" in energy policy could be on the horizon— and names the global stocks it thinks could benefit. The changing energy landscape could create investment opportunities across various sub-sectors, such as oil and gas and utilities, among others, according to HSBC. "Energy is fast becoming the most important policy area for world economies with a multitude of factors from supply disruptions, geopolitics, inflation and climate objectives all at play – triggering short – as well as long-term energy considerations," HSBC's analysts, led by Henry Ward, said on May. 5. The sector has become a focal point for Europe in particular, as the region's competing priorities — including energy security and climate goals — were laid bare by the war in Ukraine. It comes as the region was already experiencing energy-induced inflation and just months after the European Union launched its ambitious energy transition goals at COP26. As such, HSBC analysts identified buy-rated stocks they said could benefit from this changing landscape. "They are stocks that will likely be affected by IEA [International Energy Agency] and European commission plans to reduce dependency on Russian energy imports," " Ward and colleagues said. "Some will likely benefit in the short term, for instance, oil and gas stocks will likely play a key role in filling the gap left by Russian energy. Whilst renewables will have a longer-term role in reducing dependency on Russian gas and oil." Oil and gas stocks HSBC likes Norwegian energy firm Equinor as an "obvious beneficiary" of the current macro environment, with the bank expecting European gas prices to stay "higher for longer." The bank believes the company can grow its market share in Europe, given the region's greater emphasis on supply security and an acceleration in investments in hydrogen and carbon capture. The bank has a price target of 390 Norwegian krone ($40.90) on the stock, which represents over 15% potential upside from its closing price of around 337 Norwegian krone on May. 6. Read more Utilities are hot right now and Morgan Stanley sees further upside. Here are its top global picks Credit Suisse says utilities are a great inflation hedge, names its top picks in the sector HSBC believes Shell and TotalEnergies are also both poised from greater LNG sales as Europe reduces its reliance on Russian gas. Both companies have growing low-carbon energy businesses and could potentially benefit if Europe accelerates its renewable power and hydrogen targets in response to the current crisis, the bank added. The bank's price target of 2,550p ($3,146) on Shell represents a 10.9% upside to the stock's closing price of around 2,300p on Friday. HSBC has a price target of 53 euros ($55.90) on TotalEnergies, which closed at around 51 euros. Utility stocks While utility stocks have traditionally been considered a safe haven in times of market upheaval, HSBC believes Europe's sector faces volatility, cost uncertainty and political risk that is not in-keeping with the stability investors have traditionally sought. However, there are some stocks the bank does recommend within the space. HSBC likes German electric utility firm E.ON , which the bank said is "relatively immune" to volatility in commodity prices and political intervention. The bank's price target of 14.20 euros on the stock represents a 46.4% upside to its closing price of around 9.70 euros on May. 6. Another German utility firm, RWE , also made HSBC's list. The bank noted the company's "sharply improved" mid-term growth outlook and benefits from higher power price exposure with limited risk. The bank has ascribed a price target of 48 euros on the stock, which closed at around 40.60 euros on May. 6 — an implied upside of 18.2%. Energy Efficiency Swiss specialty chemicals firms Sika — a leading supplier to the renewable energy sector — is one of HSBC's top picks in the energy efficiency space. The bank expects the company to continue to lead the sector in volume growth due to multiple megatrends that also serve as growth drivers for the company. HSBC has a price target of 600 Swiss franc ($604.50) on the stock, which closed at 274.70 Swiss franc on May. 6 — an implied upside of 118.4%.

Gas pipelines of Russian state-owned energy giant Gazprom.

Andrey Rudakov | Bloomberg | Getty Images

HSBC says a "generational shift" in energy policy could be on the horizon— and names the global stocks it thinks could benefit.