We recently published a list of 10 Best Alternative Energy Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where NextEra Energy, Inc. (NYSE:NEE) stands against other best alternative energy stocks to buy according to hedge funds.
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.
READ ALSO: 10 Worst-Performing Industries in 2024 and 10 Most Promising Growth Stocks According to Hedge Funds.
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).
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NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 73
NextEra Energy, Inc. (NYSE:NEE) is the world’s largest producer of wind and solar energy, as well as a leader in battery storage technology. The company’s operations are divided into two main businesses. The first is Florida Power & Light (FPL), an electric utility company. The second is NextEra Energy Resources (NEER), one of the world’s largest producers of alternative energy and a leader in battery storage. NEER focuses on the development, construction, and operation of long-term energy assets, primarily in the U.S. and Canada. NEER manages an alternative energy portfolio of approximately 34 GW, including 24 GW from wind energy, 7 GW from solar energy, and 2 GW from nuclear energy. Additionally, NEER has 1 GW of battery storage capacity spread across 16 U.S. states.
In Q3, NextEra Energy, Inc. (NYSE:NEE) demonstrated compelling growth and resilience across multiple facets of its business, with an approximate 10% year-over-year increase in adjusted earnings to $2.12 billion, or $1.03 per share. The company’s Energy Resources division boasted an 11% increase in adjusted earnings year-over-year. NextEra Energy, Inc. (NYSE:NEE) is exploring restarting Iowa’s Duane Arnold nuclear plant, driven by heightened demand from data centers. In their Q3 earnings call, John Ketchum, Chairman, President, and Chief Executive Officer of NextEra Energy, Inc. (NYSE:NEE) said that the Duane Arnold is a 601 MW boiling water reactor (BWR) plant, which is generally less complex and expensive to recommission than pressurized water reactors (PWRs). The company expects to execute it at an attractive price and without much risk. NextEra Energy, Inc. (NYSE:NEE) is conducting engineering assessments and working with the U.S. Nuclear Regulatory Commission (NRC) on a potential restart due to strong interest from data center customers.
NextEra Energy, Inc.’s (NYSE:NEE) nuclear power capacity factor aligns well with the reliability needs of data centers, which can deliver reliable energy solutions that meet the growing demands of a digitalized economy and positions the company as a strong contender for data centers seeking reliable and alternative energy solutions. The company’s strategic investments in alternative energy, combined with its ability to leverage AI and capitalize on market trends, present an appealing opportunity for investors looking to benefit from the ongoing energy transition. In its Q2 investor letter, ClearBridge stated the following regarding NextEra Energy, Inc. (NYSE:NEE):
“AI-related momentum was a key driver of performance in the second quarter, lifting the enablers in technology as well as holdings like alternative power producer NextEra, Inc. (NYSE:NEE) that supply the increasing energy needs of data centers. Parts of the market lacking an AI connection, like our medical device holdings, underperformed despite no change to fundamentals. We have managed through several similar momentum periods over our tenure and have delivered long-term results for shareholders by staying true to an approach that emphasizes diversification across three buckets of growth companies (select, stable and cyclical) and seeks to take advantage of attractive entry points into quality growth businesses.”
Overall, NEE ranks 2nd on our list of best alternative energy stocks to buy according to hedge funds. While we acknowledge the potential of NEE, 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 NEE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.