Brookfield Renewable (NYSE:BEPC), Darling Ingredients (NYSE:DAR), and Constellation (NASDAQ:CEG) are three sustainable energy companies potentially powering portfolio upside this year and next.
Billy Hwan, CPA, CFA, Portfolio Manager, Parnassus Value Equity
Billy Hwan, CPA, CFA, is the lead Portfolio Manager of the Parnassus Value Equity strategy and a Senior Analyst.
He is responsible for portfolio management of the firm’s Value Equity strategy and firmwide investment research.
“One is Brookfield Renewable (NYSE:BEPC), which manages a global portfolio of hydro, solar, and wind power generating assets.
They provide solutions for their customers’ desire to reduce their GHG emissions.
Brookfield helps governments and businesses meet their decarbonization goals by offering an alternative to carbon-based power generation.
This company is similar to a REIT — it’s a yield company — so it distributes its dividends from very predictable cash flows.
They sign long-term power purchase agreements with their customers.
Integrating this into how we think about relative value, the company’s stock was affected by rising interest rates and declined after the Federal Reserve hiked rates.
We purchased the stock in the fall of 2023, after the stock price dropped more than 50% from its 2021 peak.
We believe the company [Brookfield Renewable (NYSE:BEPC)] is set to benefit longer term from the growing demand for renewable energy.
It most recently signed a massive agreement with Microsoft worth over $10 billion to expand Microsoft’s renewable power capacity.
That was the largest PPA signed to date, and shows that Brookfield is decisively benefiting from the trend toward more sustainable power generation.”
Anthony Tursich, Portfolio Manager, Calamos Investments
Anthony Tursich, CFA, is a Senior Vice President and Co-Portfolio Manager with Calamos Investments, and has more than 25 years of experience in socially and environmentally responsible investing strategies.
Together with Co-Portfolio Manager Jim Madden, Mr. Tursich leads the firm’s Sustainable Equities Team.
He joined Calamos Investments following its 2021 acquisition of Pearl Impact Capital, LLC, the company he founded in 2018, where he served as Chief Investment Officer and as Portfolio Manager since inception for three ESG-integrated portfolios.
Mr. Tursich’s energy pick is off the beaten path and is described in his exclusive interview in the Wall Street Transcript:
“…There’s a company based just outside of Dallas, Texas, called Darling Ingredients (NYSE:DAR).
This is a company that we think of as an energy company, while S&P and MSCI classify them as a consumer staples company.
What Darling does is they collect and process waste and create value-add products from waste that would otherwise go into landfills or go unused.
What Darling has created in recent years as an output of this waste is renewable diesel fuel that essentially comes from collecting and processing used cooking oil.
This company developed a joint venture with Gulf Coast refiner Valero (NYSE:VLO) to essentially be able to process this feedstock into renewable diesel that can go into existing energy infrastructure.
So, you don’t need a new pipeline to move and blend this with traditional diesel — it can go in the same energy infrastructure, which makes it more desirable, more efficient, and cheaper to blend.
But the real opportunity for Darling and Valero extends beyond just traditional diesel, renewable diesel for trucking and ground transportation.
They’ve developed a plant to create sustainable aviation fuel, which is going to be in increasing demand as airlines start to decarbonize in order to meet the commitments that they made in terms of reducing emissions and complying with the Paris Climate Agreement.
They have one plant that’s operational.
They have another plant that’s being built, and already a contract in place to supply sustainable aviation fuel to JFK Airport in New York and support JetBlue’s sustainable aviation fuel needs.
So, a great opportunity for growth for that company, a great opportunity to increase demand for their feedstock there.
They’re essentially creating more demand, which makes their products higher margin and more profitable for shareholders.
Michel Sznajer, Global Renewables Portfolio Manager, Ecofin
Michel Sznajer, CFA, joined Ecofin in 2016 as Portfolio Manager of the firm’s Global Renewables strategies.
Before joining Ecofin, he was a Partner and Portfolio Manager at Silvaris Capital Management.
Previously, Mr. Sznajer was at Wellington Management Co. as an industrial/infrastructure Analyst and Portfolio Manager.
Prior to that, he was at Goldman Sachs and Indosuez W.I. CARR, covering the telecommunication sectors in Asia. Mr. Sznajer earned a M.Sc. in business and engineering from Brussels University and is a CFA charterholder.
In his exclusive interview with the Wall Street Transcript, Mt. Sznager states: “…Something that is a different profile.
Constellation (NASDAQ:CEG) is a stock that has done really well in the sector, but more broadly in the S&P 500.
Constellation is the largest nuclear electricity producer in the U.S., over 10% of the total electricity generation in the country.
Those hyperscale data center developers are really looking for a substantial amount of electricity generation, and preferably carbon free.
So they have started to approach the nuclear companies to bypass the grid and basically connect directly to the nuclear plants to guarantee the amount of supply, but also 24/7 and without carbon.
You saw a first deal struck between the company called Talen (NASDAQ:TLN) and Amazon for that, at a substantial premium to the electricity price in the market.
Constellation is in negotiation with other hyperscalers, the same way Microsoft has been. And so you see Constellation benefiting from the fact that you have substantial incremental demand from buyers who are much less price sensitive than you and I are as retail electricity consumers.
They’re ready to pay a premium to the prevalent electricity price to guarantee that supply.
That first deal with Talen, if the wholesale floor price is about $43 per megawatt hour for nuclear electricity, they got more than $20 above that, so, high $60s.
The whisper is that future deals will be even higher than that.
And all of that is really incremental return for those nuclear companies — it’s all price and all cash flow, there is no incremental cost for them to generate.
Constellation is a beneficiary of the IRA, because the IRA provided a floor for the price of electricity, the $43 I mentioned.
Before, there wasn’t one, so that was the first very positive step for Constellation.
The second step, more recently, is the fact that there is that incremental demand that is really much less price sensitive that’s adding to the return.
So, you get a company that on its own merit is seeing growth and demand that should grow their earnings about 10% per year, and there might be upside to that from those additional contracts.
From that perspective, we think it’s an interesting carbon-free option in the market.” Brookfield Renewable (NYSE:BEPC), Darling Ingredients (NYSE:DAR), and Constellation (NASDAQ:CEG) are just 3 of the many stock picks for renewable energy upside in US stocks.
Read all the interviews in the Wall Street Transcript ESG & Sustainable Strategies Report to get the complete list.
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