Goldman Sachs loves these 4 global energy stocks — and one is on its conviction list

Published Thu, Jun 16 20229:01 PM EDT

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

Analysts at Goldman Sachs and Bank of America have picked their top energy stocks, with those involved in hydrogen, electric vehicles and renewables among their favorites. The sector certainly looks hot right now, with the iShares Global Energy ETF up around 30% year-to-date as investors react to sky-high energy prices. In a note from June 9 on ESG investments (or those which take environmental, social and governance factors into account), Goldman noted limitations with some ESG data. "This is why we spotlight select stocks from our sector analysts based on the latest research where ESG factors are a core part of the investment highlights or thesis," the bank's analysts, led by Evan Tylenda, said. "The companies and industries ... have notable positive sustainability impacts or are beneficiaries of broader ESG trends." A number of the stocks highlighted by the analysts are in the energy sector, including aluminum and renewables firm Norsk Hydro . Goldman is buy-rated on the stock, noting its expansion into recycled and low-carbon products. The analysts are also buy-rated on Norwegian hydrogen producer and distributor Nel , which they said is set to benefit from Europe's plan to move away from Russian fossil fuels . Japanese power equipment company Fuji Electric , meanwhile, is on Goldman's conviction list of its top buy-rated picks. The bank likes its semiconductor business, which it says is seeing earnings growth on the back of the electric vehicle boom, and its power electronics arm, which is set to benefit from customers increasing their use of renewable energy. Spanish oil and gas firm Repsol also makes Goldman's buy-rated list of stocks. "Our European Oil & Gas team believes the low-carbon transition is changing the competitive landscape of the global energy sector. Repsol is looking to accelerate its transition to low carbon by gradually becoming a fully integrated gas and power player," the analysts wrote. Read more These beaten-down global tech stocks have strong fundamentals — and analysts love them This recession will be different, so buy these names with higher-income customers, BofA says Behind the automation boom coming to the hotel industry, from 24-hour check-in to texting for towels Bank of America's picks Repsol is also a buy for BofA, which described it as one of Europe's "Beat Factor Top 10 stocks," in a research note published on June 13. "Beat Factor identifies BofA research analysts' most out-of-consensus stock ideas within the FTSE Eurofirst 300 universe, using a purely quantitative approach based on price objectives and earnings estimates," the analysts, led by Milla Savova, stated. The FTSEurofirst 300 index is made up of 300 large-cap European companies. BofA also likes Norwegian oil firm Equinor , which tops its list. "Equinor is the stock with the highest Beat Factor score this month, driven by a price objective from our analysts that is nearly 30% above consensus, as well as 2022 / 2023 EPS estimates that are also notably above," Bank of America stated. EPS refers to earnings per share, a measure of a stock's performance. Electricity company RWE is second on BofA's list of top 10. "RWE has the second highest Beat Factor score, with our analysts' price objective and 2022 EPS estimates more than 20% ahead of consensus, while their estimates for 2023 EPS are more than 80% above," the analysts wrote. They also like energy and materials more broadly. "Our analysts expect EPS growth of 25% this year for the European companies under their coverage, notably above consensus, at 14%, with energy and materials jointly contributing more than half of the gap between the two."