Morgan Stanley's top clean power picks including 2 stocks with 80% upside

Published Thu, Jul 20 202310:03 AM EDTUpdated Thu, Jul 20 20231:42 PM EDT

The U.S. clean energy landscape can gain favor as green electricity becomes more affordable, and Morgan Stanley sees stocks poised to benefit. Technological innovation can help improve efficiency and deflate the per-cost unit of green electrons by a third, analyst Mayank Maheshwari said. Solar and onshore wind, for example, will on average be about 35% cheaper than fossil fuels by 2030. Government support, supply chain localization and the increase in scale can also help these companies deflate costs, he said, while noting there are regional differences to keep in mind. In the U.S. and Asia specifically, solar, energy storage and green hydrogen will help bring an underappreciated cost deflation, he said. Solar and wind in the U.S. will also stay attractive compared with fossil fuels, while the cost difference should continue to improve over the next decade. "As electricity consumption grows 10% faster than GDP, we estimate demand for clean power will double to account for nearly half of the world's electricity requirements by 2030," he said in a note to clients. "With increased competitiveness over fossil fuels, clean power will metamorphose the electricity landscape, overtaking fossil-based generation by 2030." In this changing landscape, Maheshwari compiled his 10 key picks in the clean power space, with some expected by the firm to rally more than 80% in the next year. See which stocks are on the list below: Solar stock Sunnova made the cut, with Maheshwari's base case price target of $42 implying an upside of about 83%. The stock was up more than 29% already this year, as of Wednesday's close. Sunnova, which is focused on residential solar energy, should be a beneficiary of rising demand for rooftop solar and new home energy systems, he said. There's no additional customer growth from the upcoming shift in green energy currently priced in, he said. Energy infrastructure stock New Fortress also has a rally ahead, with Maheshwari's $50 base price target reflecting a potential upside of about 84%. Unlike Sunnova, it would mark a reprieve, with shares down more than 32% so far this year. The company, which converts fuels such as coal and fuel oil to natural gas, can reduce energy costs and help renewable penetration, he said. Maheshwari said the stock trades at a fair value of existing assets but doesn't reflect any potential boosts from further growth in the downstream business or from clean hydrogen. NOVA NFE YTD mountain Sunnova vs. New Fortress this year On the other end of the spectrum, oil giant Exxon Mobil has the smallest anticipated upside of the group, with the firm forecasting shares should rise about 19% to a base price target of $121 per share. The stock has slipped nearly 8% this year, sliding along with many other energy names after 2022's rally. Maheshwari said the company has a leading position in carbon capture and clean hydrogen and ammonia. Shares currently show no pricing in for its low-carbon investments, which he said could bring in $4 billion of EBITDA by 2030. Every stock on this list with the exception of Chevron has an overweight rating from the firm. Chevron holds an equal rating. — CNBC's Michael Bloom contributed to this report.