UBS lays out the best names to play the $2 trillion clean energy transition

Published Tue, Sep 12 20232:35 PM EDTUpdated Tue, Sep 12 20234:31 PM EDT

A tidal shift in corporate support for decarbonization pared with government funding for the energy transition has created a secular growth cycle that can exceed $2 trillion, according to UBS. Some stocks are set to benefit. Second-quarter earnings reports showed a "clear divergence" in whether and how companies would be helped by the approximately $600 billion in government benefits in support of the green energy transition, analyst Shneur Gershuni told clients. That depends on where companies sit in the value chain, he said. Timelines for getting that support can also vary. While he said some companies are already receiving benefits tied to the transition, others aren't expected to see them in 2024 or beyond. Following the latest corporate earnings season, Gershuni updated his list of stocks that investors can use to play the energy transition capital expenditure cycle. His new list includes additions such as Aemetis , Sempra and DTE Energy . These names replaced stocks including SPX Technologies and FTC Solar . Here are 10 that made the most updated list, including all his new additions: Sempra's addition came after announcements showing it was upping exposure to the energy transition, Gershuni said. Late last month, the company said a subsidiary would work with a Japanese consortium to develop a carbon-neutral gas production and liquified natural gas supply chain. Shares have underperformed the market this year, down 7.6% since 2023 began. But the average analyst, who has a buy rating, sees an upside of more than 17% ahead, according to LSEG, formerly known as Refinitiv. Eaton Corporation is also on the list and is expected to be a "key beneficiary" of increased investment in electrification and energy efficiency. That's because of what Gershuni called a "close alignment" with industrial megatrends such as reshoring , which is when companies bring their supply chains back to home soil, in addition to electrification . ETN YTD mountain Eaton's strong year Unlike Sempra, it has been a banner year for Eaton with the stock up more than 52%. But Wall Street sees that rally losing steam, with the average price target of analysts polled by LSEG indicating a downside of more than 2%. Still, the average analyst has a buy rating on the stock. NextEra Energy also made the cut, as Gershuni said the company is well-positioned to benefit from unregulated growth tied to the Inflation Reduction Act. Despite falling about 19% this year, the average analyst sees an upside of more than 32% ahead, according to LSEG. The average analyst has a buy rating, per LSEG. One of those analysts is Goldman Sachs' Carly Davenport, who said in a note to clients last month that the stock's poor performance can create a good opportunity for investors. "We reiterate our Buy rating on NEE with attractive valuation after underperformance as we believe the market remains supportive of an inflection in pace of renewables additions, which we believe will drive best in class earnings growth for NEE," she said. — CNBC's Michael Bloom contributed to this report.