Wall Street banks point to key stocks for rising energy and hydrogen

Charlie Taylor

Morgan Stanley and Bernstein analysts name top stocks to navigate the booming energy sector. The energy sector was one of the sectors that suffered the most in the stock market in the last year, “but also is one of the few positive highlights in the S&P 500 index in 2022,” according to Bank of America, which advises investors to “stay long” in the sector.

Bank strategists assume that a sharp contraction in Russian oil exports could trigger an oil crisisas in the 1980s.

The sector has benefited from rising crude oil prices this yearamid a rebound in consumption and supply disruptions as a result of the Russian invasion of Ukraine.

Gasoline prices, meanwhile, also hit record levelseven doubling in some areas, such as the US.

Opportunities in the electricity sector

Morgan Stanley noted that Asian energy producers are benefiting from this, producing more than its global peers. The main names in this space include the Woodside Energy of Australia, PTT Exploration and Production of Thailand, and China National Offshore Oil Corporation: Woodside’s “solid balance sheet” allows flexibility for the company to finance growth and distribute excess capital. The bank implies an advantage of 21.6% over the company.
Morgan Stanley also likes PTTEP for its “good quality” growth. The bank expects the company to deliver 13% compound volume growth in 2024, and sees a good upside in dividends and earnings growth.
The China National Offshore Oil Corporation, according to Morgan Stanley, must be able to reap the full benefits of strong oil prices, expecting compound production volume growth of 6.4% by 2025which implies a 15.7% increase in shares to a closing price of $12.1 HK dollars on June 7.

Billion dollar opportunity

Given the highly electrical nature of hydrogen industrywith complex processes and unique characteristics as a fuel, Nicholas Green, an analyst at Bernstein Bank, noted that production goods are indispensable for the sector.

As in many consumer products industries, we suspect the opportunity lies in the ‘picks and shovels,’ and production goods and services needed to make the hydrogen economy work.

ABB and Aveva are among the “best positioned” stocks for growth in hydrogen, according to Bernstein: ABB, a Swedish manufacturer of industrial robots and drives, offers a wide range of products across the hydrogen value chainfrom production, transport, storage, to consumption, according to Green. In addition, the company has experience in controlling heavy electrical loads with precision. With a $40 price target on the stock, it closed at $31.60 on June 6th, representing a 26.6% upside potential.
Bernstein also likes British software company Aveva, a leading 3-D visualization platform for heavy process industries. The bank’s target price of $44 represents a potential 57% upside to its June 6th price.

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