We recently published a list of 12 Best Infrastructure Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Sempra (NYSE:SRE) stands against other best infrastructure stocks to buy according to hedge funds.
Doug Rachlin, Neuberger Berman senior portfolio manager, joined CNBC’s ‘Squawk on the Street’ on January 27 to discuss why he believes that the current opportunity set in infrastructure is the best he has seen in three decades. Managing this strategy since the summer of 1996, Rachlin pointed to several factors driving his optimism. One major aspect is the role of midstream infrastructure companies in supporting energy dominance in the US. The US leads globally in propane exports, accounting for 46% of worldwide supply.
Rachlin emphasized that these investments align with principles from investors like Charlie Munger. He advocates for concentrated investing based on strong conviction rather than spreading bets thinly across many stocks. Regarding recent developments that might impact pipeline companies involved in natural gas transmission, such as news related to deep sea activities, Rachlin noted that natural gas prices reaching $4 were due to cold winter weather rather than AI-driven data center buildouts. He highlighted growth prospects for LNG exports over the next decade, which could reach up to 35 billion cubic feet per year under favorable policies initiated during Trump’s administration.
This growth aligns well with Neuberger Berman’s focus on midstream infrastructure within their broader energy transition strategy. The firm emphasizes utilities, renewables, and Master Limited Partnerships alongside traditional energy assets like pipelines critical for transporting natural gas. This is a vital component in powering data centers across the country. As LNG exports are set to double over four years (from ~13 billion cubic feet today to potentially over 25 billion cubic feet by end-2028) and possibly reach even higher levels thereafter, the demand for robust midstream infrastructure will continue growing. This scenario underscores why Rachlin views current opportunities as compelling within his long-standing career managing this sector-focused investment strategy.
The infrastructure asset management (IAM) market is booming. It was worth $37.65 billion in 2022 and is predicted to grow by 8.9% each year until 2030. This is because companies are using these services to save money on infrastructure maintenance. Industries like manufacturing and oil and gas use IAM to optimize existing assets and ensure upkeep, especially since upgrading older designs is expensive. For example, much of the US’s energy infrastructure is 25+ years old, and Europe struggles with water waste due to leaky pipes. IAM helps maximize return on assets, improving quality and productivity.
Methodology
We first sifted through ETFs, online rankings, and internet lists to compile a list of the top infrastructure stocks to buy. We then selected the 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q3 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
Why are we interested in the stocks that hedge funds pile into? 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).
A power transmission tower with a desert sunset in the background, symbolizing power and energy.
Sempra (NYSE:SRE)
Number of Hedge Fund Holders: 33
Sempra (NYSE:SRE) is an energy infrastructure company that operates in the US and internationally. It has three segments; Sempra California, Sempra Texas Utilities, and Sempra Infrastructure. It provides electricity and natural gas services and develops energy infrastructure through these segments.
Morgan Stanley upgraded the company’s price target to $98 from $85 in January. It’s expected to capitalize on Texas’s leading data center activity driven by AI spending. Despite recent challenges managing rising costs and declining California revenues, its stable core business and growth potential offer a compelling risk-reward profile. Its investments in LNG and renewable energy infrastructure underpin its positive investment outlook.
The company sees a massive need for infrastructure upgrades in the US. It estimates that over $600 billion is needed by 2030, and believes that the number could be even higher. Texas, which is a key market for Sempra (NYSE:SRE), is projected to see huge electricity demand growth, around 80% by 2030. This is partly fueled by AI and data centers, which could consume double the current state’s electricity by 2026. The company believes that high-voltage transmission is a prime opportunity, and notes that over 350 gigawatts of generation and storage projects are waiting to connect in Texas.
Sempra’s (NYSE:SRE) subsidiary, Oncor, is crucial to this. Oncor upgraded over 800 miles of transmission lines in FQ3 2024 and saw a 50% jump in requests for new large connections. The Permian Basin is another growth area, with demand projected to quadruple by 2038. This represents a huge investment opportunity (at least $13 billion), and Oncor expects to win a large share of the projects.
ClearBridge Dividend Strategy stated the following regarding Sempra (NYSE:SRE) in its Q2 2024 investor letter:
“Utilities rose largely on merchant power companies serving the data centers powering AI; the rest of the sector, along with real estate, suffered as rate cut expectations were pushed out. One exception was our holding Sempra (NYSE:SRE) — a well-managed and diversified utility holding company. Sempra possesses large franchises in Texas and California, as well as a large LNG business. Sempra is a leading player in each of its markets and all its segments enjoy robust growth outlooks, which should drive high-single-digit growth for the company overall.”
Overall, SRE ranks 10th on our list of best infrastructure stocks to buy according to hedge funds. While we acknowledge the growth potential of SRE, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SRE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap
Disclosure: None. This article is originally published at Insider Monkey.
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