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A roundtable of energy experts brought together by Barron's has come up with 12 energy-related stocks that they say are poised to flourish due to growing demand.
Stephen Byrd, global head of sustainability and clean-tech research at Morgan Stanley, likes AES (AES), Vistra (VST), Constellation Energy (CEG), Bloom Energy (BE), and Sunrun (NASDAQ:RUN).
Byrd highlighed Sunrun and Bloom Energy. The former provides residential solar energy systems, while the latter markets a a solid oxide technology that converts fuel, such as natural gas, biogas, hydrogen, or a blend of these into electricity.
"Both companies essentially are driven by the growing disconnect we see: Utility bills continue to rise, and the cost for these clean-technology products continues to fall," he said. "Both companies have fairly high barriers to entry."
Picks from Lucas White, a natural-resources and climate-focused portfolio manager at GMO, are: Sunrun (RUN), First Solar (NASDAQ:FSLR), SolarEdge Technologies (NASDAQ:SEDG), Darling Ingredients (DAR), and Neste (OTCPK:NTOIY).
Sunrun "is differentiated by its scale. It has a chance to be a long-term winner," White said.
He added that he has a high-quality bias and a value orientation. "Companies in the biofuels space, such as Darling Ingredients and Neste, are also relatively high-quality, have a competitive edge, and are trading cheaply relative to their long-term profitability."
Stan Majcher, an energy-focused portfolio manager at Hotchkis & Wiley, likes APA (APA), Kosmos Energy (KOS), and Shell (NYSE:SHEL).
Regarding smaller companies, he likes ones trading at 15% to 20% free-cash-flow yield, citing APA -- previously known as Apache -- and Kosmos as examples.
"What’s nice about [APA] is that it has about $13 a share in assets that currently aren't producing earnings or free cash flow," Majcher said. "They range from discoveries off the coast of Suriname to an LNG [liquefied natural gas] contract with Cheniere Energy (LNG), and net operating losses that can shield taxes. All of those assets, you're getting for free."
Regarding Kosmos Energy (KOS), he noted that "it trades for about five times earnings, for a 20% free-cash-flow yield. It has some offshore LNG assets that should come on later this year that we think you're getting for free."
Byrd, White, and Majcher all said that for investors interested in energy, they suggest investing a majority of those assets in traditional fossil fuel companies.
"Among our Overweight [Buy-rated] stocks, we have a larger group in energy where the market-cap upside is bigger than the market-cap upside in clean energy," Byrd said.