We recently compiled a list of the 10 Best Renewable Energy Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where NextEra (NYSE:NEE) stands against the other renewable energy stocks.
The Future of Renewable Energy
The renewable energy industry is currently one of the most prominent sectors globally. Examples of renewable fuels include wind, hydropower, biofuel, and solar energy. According to a report by Business Research Company, the global renewable energy market was valued at $1.10 trillion in 2024 and is expected to reach $1.55 trillion by 2028, growing at a CAGR of 8.8%. Environmental concerns and strict environmental regulations in many developed countries have significantly boosted the sector and the energy generation industry has seen an increase in installed capacity for renewable energy sources. The increase in power demand and energy consumption are also some of the key reasons for the growing demand in the renewable energy market.
According to the International Energy Agency (IEA), the global energy demand is forecasted to increase by 3.4% annually till 2026. Around 85% of the demand is expected to come from China and India. The energy demand in India alone is forecasted to grow by 6% annually till 2026 due to robust economic growth and rising household consumption. Southeast Asia is expected to see a 5% annual increase in electricity demand by 2026. In the United States, a moderate increase in electricity demand is expected in the coming years, mainly due to the growing need for data centers. The electricity usage by data centers, artificial intelligence, and cryptocurrency could potentially double to 1,000 TWh by 2026. According to the IEA, the rise in electricity generation from low-emission sources will meet global demand growth over the next three years, with renewable energy anticipated to surpass coal as the leading energy source by early 2025.
The U.S. Energy Information Administration (EIA) expects renewable energy deployment to grow by 17% in 2024 to potentially reach 42 GW and contribute to nearly a quarter of the nation’s electricity generation. However, this growth might come with a temporary increase in renewable energy costs due to high financing, labor, and land expenses. Despite this, tax credits from the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) are likely to keep solar and wind energy competitive. Solar and storage markets are expected to see further expansion, driven by tax incentives and government support, particularly through programs like the DOE’s Loans Program Office. On the other hand, the wind and hydrogen energy sectors might face challenges. Wind energy is encountering higher deployment costs and delays in obtaining approvals, while hydrogen energy struggles due to a lack of government incentive programs to support its development.
Investing in Renewable Energy
Hanchen Wang, Equity Analyst at DWS Group, expresses optimism about the future of the renewables market, noting its growing appeal to investors due to the potential for stable long-term returns and alignment with global sustainability goals. Wang emphasizes that while renewable energy sources like wind, solar, and hydropower are gaining market share, they still encounter challenges such as high upfront costs and intermittency issues. He underscores that advancements in technology, including better energy storage solutions and enhanced grid infrastructure, are essential for overcoming these obstacles and fostering the sector’s growth.
In a recent interview, Bruce Flatt, CEO of Brookfield Asset Management, highlighted the significant impact of decarbonization on industries and investments, calling it a major trend reshaping the landscape. The company has launched a dedicated renewable energy fund, initially raising $15 billion, with plans to establish a second fund. This initiative aims to support companies in reducing their carbon emissions by investing in and developing renewable energy projects. Flatt emphasized that the company is one of the largest global developers and owners of renewable energy assets, with solar and wind power projects in 15 countries. The company’s strategy includes not only constructing renewable energy infrastructure but also supplying renewable power directly to corporate clients, helping them achieve their net-zero commitments. The U.S. Inflation Reduction Act (IRA) has positively impacted the renewable energy sector, providing significant incentives that have accelerated project development. Flatt noted that the Act has increased the likelihood of project completion, with more projects advancing at a faster pace, which benefits the renewable energy market.
The renewable energy sector is poised for substantial growth, driven by increasing environmental awareness, favorable regulations, and advancements in technologies like wind, solar, and hydropower. Although the industry faces challenges such as high upfront costs and technological barriers, its overall outlook is optimistic. With that in context here are the 10 best renewable energy stocks to buy according to hedge funds.
Our Methodology
For this article, we scanned clean energy ETFs plus online rankings to compile an initial list of 50 renewable energy stocks. From that list, we narrowed our choices to 10 stocks that were the most widely held by hedge funds. The hedge fund data was taken from our database of 912 elite hedge funds as of Q2 of 2024. We also included the market cap of these companies as of September 2. 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).
A wind turbine, its blades spinning to generate clean renewable energy.
NextEra (NYSE:NEE)
Number of Hedge Fund Holders: 73
Market Capitalization as of September 2: $165.47 Billion
NextEra is the world’s largest producer of wind and solar energy, as well as a leader in battery storage technology. NextEra’s subsidiaries, including Florida Power & Light, serve millions of customers, and the company’s investments in clean energy are helping to drive the transition to a low-carbon economy. The company has divided its operations into two primary businesses. The first is Florida Power & Light (FPL) which is an electric utility company. The second major business is NextEra Resources (NEER) which is the one of the world’s largest producer of renewable energy an a leader in battery storage. NEER focuses on developing, constructing, and operating long-term assets primarily in the United States and Canada.
The company has over two decades of experience in developing and operating renewable projects which gives it a significant competitive edge. The company held 56% of the wind market in 2022 and 38% of the renewable market share from 2019 to 2022. NEER operates a clean energy portfolio of approximately 34 GW of which 24 GW is derived from wind energy, 7 GW from solar energy, and 2 GW from nuclear energy. NEER also has 1 GW of battery storage capacity spanning across 16 states in the United States.
Nearly 93% of the company’s revenues come from long-term Power Purchase Agreements with data centers and tech companies which ensure stable and predictable cash flows. The company’s financial performance remains robust, adjusted earnings increased by 10.8% in Q2 2024, due to investments and a growing renewables portfolio. Looking forward, NEER anticipates its earnings per share (EPS) to rise by 6-8% annually till 2027 and plans to increase dividend payments by 10% annually. In its second quarter investor letter, ClearBridge stated the following regarding NextEra (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 renewable 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.”
NextEra’s (NYSE:NEE) is valued at $163.56 billion as of August 20. The stock is held by 81 hedge funds with stakes worth $2.10 billion as of the second quarter. As of June 30 GQG Partners is the largest shareholder in the company and has stocks worth $884.56 million.
Overall NEE ranks 2nd on our list of the best renewable energy stocks to buy. While we acknowledge the potential of NEE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. 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.