Investing.com - Clean Energy burned a lot of investors when easy money was choked off, according to Citi Research, but near-term, a Fed pivot and lower rates could still be a catalyst for the broader Green theme.
“We still are not broad buyers of ‘Green’ per se,” said analysts at Citi Research, in a note dated Aug. 30, “ but see opportunities within the wider theme where profitable businesses can benefit from ongoing secular investment trends.”
Under the surface, corporate focus on green initiatives is becoming less novel and more integrated into normal business practices thus potentially expanding the opportunity.
A Fed pivot and subsequently lower rates should be a tailwind to relative performance, as well as possible political implications.
Recent returns imply a Democrat president may be more supportive of “Green”, but there are nuances, the bank added. Democratic policies directly support the clean technology implementation, but further deficit spending is unlikely without a sweep. For Republicans, IRA [Inflation Reduction Act] is unlikely to be repealed, and deregulation/tax-friendly investment policy could make projects more palatable.
However, rate and political catalysts alone are unlikely to sustain “Green” stocks medium-term, Citi said.
“Therefore, we focus on three key fundamental characteristics: positive cash flow, visible profitability, and sales/EBITDA growth acceleration. Clean Water, Energy Efficiency, and Nuclear Energy standout as most attractive, while Electric Vehicles and Energy Storage may be most challenged.”
Citi has added buy-rated names Ecolab (NYSE:ECL) and IDEX Corporation (NYSE:IEX) to the Thematic 30 recommended list for Clean Water exposure, saying they have reasonable implied growth setups and moderate rate and politic sensitivity scores.