Morgan Stanley says buy these 17 EV and green stocks which are shrugging off any 'bubble' concerns — including one that could rally almost 60%

  • Investors are getting increasingly concerned that green stocks are becoming a bubble.
  • Cheap liquidity and investor demand have driven rallies in the likes of EV-company Tesla.
  • These are the 17 stocks that can shrug off the bubble concerns, Morgan Stanley said.
  • Visit the Business section of Insider for more stories.

Sustainable investing is booming, and a whole sector of green stocks and their enablers is reaping the rewards.

Elon Musk’s electric-vehicle company Tesla has repeatedly made the headlines with its unprecedented 392% gain year-on-year, but solar firms like SunPower, which gained over 698%, have also been key beneficiaries.

These rallies have some investors concerned about a “green bubble” as companies benefit from cheap liquidity and investor interest, according to Morgan Stanley.

The broader ESG market is likely to brush off these bubble concerns, with the 17 stocks below likely to be big winners, the firm said. But some companies look decidedly overvalued.

Why is the sector performing so well?

The task of meeting the Paris Agreement’s goal of net zero emissions by 2050 is driving higher expectations for revenue growth. Banks like Morgan Stanley and Goldman Sachs are forecasting that governments and private companies alike will spend trillions of dollars to meet the goal.

Also, China’s commitment to a 2060 net zero goal and President Biden’s rejoining the Paris Agreement are only increasing these tailwinds as investors expect stronger regulation as well as monetary incentives, the note said.

Moreover, investors are starting to put their monies were their mouths are when it comes to sustainability.

In 2020, investments in ESG-labelled funds — as designated by Morningstar — totalled $326 billion, the note said, doubling 2019’s figure.

ESG has gone mainstream with most fund managers and banks subscribing to the broader cause as hard data has started to disprove the common misconception that investing sustainability comes at the price of returns.

Why are investors concerned about a bubble?

The sector’s exponential gains have rattled some investors, with “numerous ‘alternate energy’ indices, ETFs and stocks rallying by 100% and more over the last year,” Morgan Stanley said.

Although the broader ESG investing sector remains distant from “bubble territory,” some ‘green stocks’ do appear overvalued, the note added.

For a bubble to exist, two factors must occur at the same time, according to Graham Secker, a European strategist at Morgan Stanley.

  1. An emerging theme with attractive long-term fundamentals, and

  2. Abundant, cheap liquidity.

The aforementioned flows into ESG investing, combined with the $8 trillion expansion of global central bank balance sheets, has “created a near perfect environment for bubbles to develop within asset markets in general and with an ESG tilt in particular,” the note said.

Some company valuations have become stretched under these conditions, leading to underweight ratings from Morgan Stanley. They include green energy companies Nibe Industries, Array Industries, First Solar and SunPower Corp.

But, some stocks have shrugged off the bubble concerns, and despite seeing large gains over the last year, still offer huge opportunities to investors.

As a result, Morgan Stanley is playing the green-energy transition through these 17 stocks that are either equal-weight and overweight-rated.

1. Nio

  • Ticker: NYSE: NIO
  • Market cap: $86.03 billion
  • % Upside: 33%
  • Overweight

Source: Morgan Stanley

2. Xpeng Inc.

  • Ticker: NYSE: XPEV
  • Market cap: $32.95 billion
  • % Upside: 49%
  • Overweight

Source: Morgan Stanley

3. Li Auto Inc.

  • Ticker: NASDAQ: LI
  • Market cap: $26.43 billion
  • % Upside: 53%
  • Overweight

Source: Morgan Stanley

4. Kingspan Group PLC

  • Ticker: LON: KGP
  • Market cap: £10.76 billion
  • % Upside: 29%
  • Equal-weight

Source: Morgan Stanley

5. Sika AG

  • Ticker: SWX: SIKA
  • Market cap: $39.10 billion
  • % Upside: 17%
  • Overweight.

Source: Morgan Stanley

6. Siemens Energy AG

  • Ticker: ETR: ENR
  • Market cap: €23.94 billion
  • % Upside: 5%
  • Overweight

Source: Morgan Stanley

7. Croda

  • Ticker: LON: CRDA
  • Market cap: £9.09 billion
  • % Upside: 5%
  • Overweight

Source: Morgan Stanley

8. Johnson Matthey

  • Ticker: LON: JMAT
  • Market cap: £5.89 billion
  • % Upside: 18%
  • Overweight

Source: Morgan Stanley

9. Orsted

  • Ticker: CPH: ORSTED
  • Market cap: $70,40 billion
  • % Upside: 34%
  • Overweight

Source: Morgan Stanley

10. Tesla

  • Ticker: NASDAQ: TSLA
  • Market cap: $752.12 billion
  • % Upside: 24%
  • Overweight

Source: Morgan Stanley

11. Clearway Energy

  • Ticker: NYSE: CWEN.N
  • Market cap: $6.32B billion
  • % Upside: 9%
  • Equal-weight

Source: Morgan Stanley

12. Atlantica Sustainable Infrastructure

  • Ticker: NASDAQ: AY
  • Market cap: $4.04B billion
  • % Upside: 24%
  • Overweight

Source: Morgan Stanley

13. SolarEdge Technologies

  • Ticker: NASDAQ: SEDG
  • Market cap: $15.98 billion
  • % Upside: 7%
  • Overweight

Source: Morgan Stanley

14. Sunrun

  • Ticker: NASDAQ: RUN
  • Market cap: $13.63 billion
  • % Upside: 8%
  • Equal-weight

Source: Morgan Stanley

15. EDP Renováveis

  • Ticker: PL: EDPR
  • Market cap: €13.38 billion
  • % Upside: 13%
  • Equal-weight

Source: Morgan Stanley

16. TPI Composites

  • Ticker: NASDAQ: RUN
  • Market cap: $13.63 billion
  • % Upside: 8%
  • Equal-weight

Source: Morgan Stanley

17. Jiangsu Zhongtian Technology

  • Ticker: SHA: 600522
  • Market cap: $4.50 billion
  • % Upside: 57%
  • Overweight

Source: Morgan Stanley

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