Tyler Rosenlicht, Head of Natural Resource Equities at Cohen & Steers, in an interview with Bloomberg on July 31, shared his insights on the global energy landscape, emphasizing that the conversation around energy has shifted beyond just oil. While oil remains a significant driver of production and energy supply, natural gas, nuclear, and alternative energy sources are growing rapidly.
Rosenlicht noted that the growing demand for energy from data centers requires significant amounts of power to operate, however, energy consumption is also surging to satisfy the needs of technological advances, a rising middle class globally, urbanization, and traveling. Rosenlicht believes that the demand for energy will continue to grow, driven by population growth, economic expansion, and the increasing energy intensity of the global economy. He noted that his firm Cohen & Steers forecasts energy demand in 2040, taking into account factors such as population growth, economic growth, and energy intensity.
Rosenlicht expressed concerns that the assumption of increasing energy efficiency may be overstated, as new technologies may lead to higher energy usage. He emphasized that the world is in an “energy addition” phase, where new supply is needed to meet growing demand.
In terms of investment opportunities, Rosenlicht favors the U.S. natural gas sector, particularly liquefied natural gas (LNG) exports. He also favors energy companies that are pursuing emissions reductions using their existing infrastructure. On the alternative side, Rosenlicht’s company is bullish on companies building electrification assets and infrastructure, such as transmission wires and lines. Rosenlicht is also bullish on nuclear energy, which he believes will play a crucial role in meeting the demand for low-carbon energy.
Clean energy ETFs have also been a popular investment choice, especially between 2020 and 2022, when the industry experienced rapid growth. One major driver was the declining costs of solar and wind energy, which became increasingly competitive with fossil fuels. The Clean Energy ETFs also benefited from broader techno-optimism between 2020 and 2022. However, the interest rate hikes beginning in mid-2022 have significantly impacted the sector. For example, the iShares Global Clean Energy ETF (NASDAQ:ICLN) has declined by 20% year to date, as of November 11. The SPDR Kensho Clean Power ETF (NYSEARCA:CNRG), which invests in companies innovating and manufacturing renewable energy technology rather than generating power directly is down 13.3% year to date, as of November 11. The clean energy sector is expected to regain momentum driven by decreasing costs, technological advancements, and global carbon reduction targets, the industry has a solid long-term outlook. According to Straits Research, the clean energy market is expected to grow at a 9.47% annual growth rate from 2024 to 2032.
The alternative energy sector is set for significant growth, fueled by rising environmental awareness, favorable regulations, and advancements in technologies such as wind, solar, and hydropower. While the industry encounters challenges, including high upfront costs and technological barriers, the overall outlook remains positive.
Our Methodology
For this article, we scanned alternative energy ETFs plus online rankings to compile an initial list of 30 alternative energy stocks. From that list, we narrowed our choices to 10 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their hedge fund sentiment, as of the second quarter.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Best Clean Energy Stocks To Buy According to Billionaires
Solar panel workers installing a new farm for clean energy generation.
Vistra Corp. (NYSE:VST) is a vertically integrated energy company based in Texas and operates a diversified energy portfolio. Vistra (NYSE:VST) supplies electricity and natural gas to residential, commercial, and industrial customers. The company also operates battery energy storage facilities, and its nuclear assets play a crucial role in powering artificial intelligence (AI) systems.
On September 11, Vistra Corp. (NYSE:VST) announced a new program in partnership with Sunrun, a solar energy company, to support grid stability and provide financial incentives to homeowners in Texas. The program called the TXU Energy & Sunrun Battery Rewards program, aims to harness the collective power of solar-connected batteries in residential homes to form a virtual power plant. This virtual power plant will enable the aggregation of stored energy in these batteries, which can be discharged back to the grid during times of peak demand.
The program is designed to benefit both Vistra Corp.’s (NYSE:VST) customers and the grid as a whole. Homeowners who participate in the program and have installed Sunrun home solar panels and batteries will receive financial incentives for their participation. They will also retain control of their systems during power outages or severe weather conditions, ensuring they have a reliable source of energy when it’s needed most. Additionally, these customers can continue to benefit from TXU Energy’s solar buyback plans, which credit solar energy system owners for the electricity they add to the grid.
The partnership between Vistra Corp. (NYSE:VST) and Sunrun is a significant development in the energy sector, as it leverages the power of residential solar energy to support grid stability. With over 116,000 installed systems and a proven track record of incentivizing customers to support local power grids, Sunrun brings its expertise in virtual power plants to the partnership.
The program will also contribute to Vistra Corp.’s (NYSE:VST) sustainability goals, as it promotes the use of alternative energy and reduces the company’s reliance on fossil fuels. Additionally, the program will help to reduce the company’s costs associated with peak demand, as the company will be able to draw on the collective power of the residential solar batteries during times of high demand. This can help to reduce Vistra Corp.’s (NYSE:VST) reliance on more expensive forms of energy generation, such as natural gas or coal, and lower its overall costs. In their Q2 investor letter, Fidelity Investments shared the followinginsights on Vistra Corp. (NYSE:VST):
“An overweight stake in utility company Vistra Corp. (NYSE:VST) (+24%) was the top individual relative contributor. In Q1, the Texas-based independent power producer completed its acquisition of Ohio-based nuclear fleet operator Energy Harbor. The new Vistra, with its expanded geographic footprint, is in strong position to gain from the buildout of AI-capable data centers, which require enormous amounts of power to run. It is expected that local grids in the U.S. will need to invest heavily over the coming years to improve their power infrastructure and meet growing demand. In the nearer term, firms may choose to contract with independent power producers, like Vistra, rather than rely on the local provider.”
Vistra Corp. (NYSE:VST) has also integrated AI technologies into its operations to improve power plant efficiency, enhance thermal efficiency, and lower carbon emissions. The implementation of the Heat Rate Optimizer (HRO) across 67 power-generation units in 26 plants has resulted in a 1% average improvement in efficiency, saving the company millions in operational costs.
Overall, VST ranks 1st on our list of best alternative energy stocks to buy according to hedge funds. While we acknowledge the potential of VST, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than VST but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
