Investors should completely bail on clean energy stocks with some select opportunities in the space presenting themselves, according to Citi. After a massive rally in clean energy driven by social and political tailwinds, lots of liquidity and low interest rates, analyst Drew Pettit said these stocks have mostly felt pain since late 2021. Despite reasons for optimism like the Inflation Reduction Act, Pettit said tightening liquidity has likely been at the heart of the shift. The iShares Global Clean Energy ETF (ICLN) is down 30% over the past two years. ICLN mountain 2021-08-20 ICLN in past 2 years But Pettit doesn’t see all bad news when diving deeper into the sector, with stocks that he said provide near- to medium-term opportunities. Investors appear to have relatively low patience waiting for a company to show proof of their concept in the business model, he said. There’s also an emphasis on higher performance and fundamental dispersion. “Volatility in Clean Energy stocks piqued our interest and sparked a question: is this theme still investable? Our answer is yes, but some important delineations have to be made,” Pettit said. “The profitable side of Clean Energy is alive and well with many stock selection opportunities.” With this in mind, Pettit focused on stock selection opportunities in aggregate. When stock selecting in the space, Pettit said to focus on those with premium growth expectations that come at a reasonable price. To find these, he looked at those within developed markets that have premium growth but a price/earnings-to-growth or enterprise value-to-EBITDA ratios that are equal to or above sector averages. Here’s 10 that made his list: While some solar stocks were considered risks, SolarEdge and Enphase made the better list. Both companies mixed second quarters, beating on earnings per share while missing on revenue. Each also offered current-quarter guidance that was softer than analysts expected. Some on Wall Street downgraded the stocks following their reports. But KeyBanc analyst Sophie Karp kept her overweight rating on Enphase while acknowledging the challenges ahead. Though Karp slashed her price target by $67, her $200 estimate for shares still implies an upside of more than 60% from Friday’s close. “We continue to view ENPH favorably in the MT-LT, and remain Overweight given currently depressed valuation,” she said in a note to clients earlier this month. “We believe the stock will be supported by high FCF yield.” It’s been a tough year for the pair, with SolarEdge and Enphase down more than 40% and 50% in 2023, respectively. .SPX SEDG,ENPH YTD mountain SolarEdge and Enphase vs. the S & P 500 this year Generator maker Cummins also made the list. While missing earnings per share expectations when reporting for the second quarter earlier this month, the company beat analysts’ revenue consensus and reaffirmed full-year revenue guidance. Cummins has also underperformed the broader market this year, down more than 3% year to date. To be sure, there’s some popular names with high cash burn and negative free cash flow that he’d recommend avoiding. Electric vehicle maker Rivian , as well as solar names SunPower and Sunnova , were are all on his list of most at-risk stocks. — CNBC’s Michael Bloom contributed to this report
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