The pullback in clean tech stocks presents a ‘rare buying opportunity’, Morgan Stanley says

Sunrun solar installation
Sunrun installers put panels on a home in Sunnyvale, California Michael Noble Jr./San Francisco Chronicle via Getty Images
  • Morgan Stanley told clients on Wednesday that the clean tech stock pullback is a buying opportunity.
  • Analysts upgraded a basket of clean tech stocks to “outperform”, citing “strong growth in renewables and energy storage.”
  • Morgan Stanley’s US power supply mix forecast says 40% of energy output will be renewable by 2030.
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The recent pullback in clean tech stocks presents a “rare buying opportunity” according to analysts at Morgan Stanley.

In a note to clients on Wednesday, Morgan Stanley analysts led by Stephen C. Byrd said they are recommending clean tech stocks with “strong growth and cash flow” after a recent fall in share prices.

The analysts upgraded a basket of stocks from the sector including AES Corporation, Atlantica Sustainable Infrastructure, Solaredge Technologies, TPI Composites, and SunRun to overweight in their note.

The team cited “strong growth in renewables and energy storage given favorable economics and further cost declines” as the main reason for their upgrade.

The analysts also said the trend towards increased environmental, social, and corporate governance (ESG) spending would be a positive for the clean tech sector moving forward, and argued ESG capital is “being deployed on leaders in clean energy” like the names they’ve upgraded.

The team from Morgan Stanley added that they believe federal support in the form of clean energy and infrastructure legislation is an “under-appreciated upcoming catalyst” for the clean tech sector.

Additionally, according to Morgan Stanley’s US power supply mix forecast, there will be a huge increase in renewable energy use over the next decade from 12% of current power output to roughly 40% by 2030.

Still, the analysts reduced their price targets for the sector somewhat due to “a higher cost of capital given a rising rate environment and higher equity risk premium.”

The analysts noted that many investors believe valuations are high in the sector after a run-up in share prices in 2020 and into 2021. However, according to the team, after the recent pullback there are “many Clean Tech stocks reflecting growth that is far below their rapid, multi-decade growth outlook.”

The analysts also noted that “corporate and residential consumer interest in clean energy and energy storage continues to rise substantially.”

The clean tech sector has been booming of late. So much so that Global X started the CleanTech ETF or CTEC, last October to allow investors to bet on the sector as a whole. The ETF has posted a 50% return since inception.