Citi analyst Jenny Ping sees exponential growth opportunities for investors in offshore wind stocks as power output from the sector is set to climb seven-fold in the next decade. This expansion, which will spread from Europe to the U.S. and Asia, will require an estimated US$375-billion investment that will serve as revenue growth for many stocks in the sector.
Citi finds many companies in the sector fully valued and faced with increasing competition from large, well-capitalized players. Integrated oil companies, like France’s Total SE, are attempting to leverage their offshore oil drilling expertise into a wind-based renewable power business.
In Europe, utility companies have a head start in the form of seabed leases [regulatory permits to build wind farms], but Ms. Ping does not believe they will be able to expand capacity quickly enough to maintain this leadership position. Big oil companies like Total and Spain’s Repsol SA should slowly begin to dominate.
The analyst sees engineering companies that sell equipment in the sector and, perhaps surprisingly, oil services companies as the best way investors can benefit from the development of global wind power. In the first case, the high technical requirements involved in equipment manufacturing creates barriers to new competition. General Electric Co. and Siemens Gamesa Renewable Energy SA should be able to maintain profit margins.
As for oil services, Ms. Ping writes, “The increasing complexity and scale of offshore wind projects sees the oil services companies well-positioned” for revenue growth. These services companies also have relationships with the oil companies that are now expanding into wind power. Citi sees U.K.-based Subsea 7 SA as particularly undervalued in light of the company’s exposure to wind power.
Wind power stocks are already benefiting from an ocean of new investment in ESG (Environmental, Social and governance) funds. Earlier this month, The Financial Times reported that global ESG investment had almost quadrupled in 2020 compared to last year and cited Morningstar data estimating that assets in sustainable investing funds has reached US$1.2-trillion.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
Richards Packaging Income Fund (RPI-UN-T) Richards Packaging has seen its revenue rocket higher with sales of hand sanitizers and disinfectants spiking during the coronavirus pandemic. But its unit price has dropped 13 per cent over the past six trading sessions and is now oversold from a technical perspective. Given this security’s valuation, a stellar 58 per cent year-to-date gain, and the lack of near-term earnings growth forecast, investors are likely to seek buying opportunities elsewhere in other areas such as economic recovery plays as vaccines near for COVID-19. Jennifer Dowty has a profile of the stock. (for subscribers)
Fairfax Financial Holdings Ltd. (FFH-T) The insurance conglomerate run by chief executive Prem Watsa - often referred to as Canada’s Warren Buffett - trades at about 0.7 times book value. In really good times, notes Norman Rothery, it might get back up to 1.5 times book value. In other words, a double is a possibility in the stock price should all go well with COVID-19 vaccines and if the value stocks owned by Fairfax make a comeback. Norman explains more on why he’s recommending the stock. (for subscribers)
Westport Fuel Systems Inc. (WPRT-T) Shares in the alternative fuel systems maker are surging on the back of a recent earnings beat and a renewed positive outlook for renewable and clean energy alternatives. And as Brenda Bouw reports, analysts believe there’s more upside for the stock. (for subscribers)
The Rundown
How to prepare your portfolio for further pandemic-related turbulence
The coronavirus is not finished hammering the economy, and won’t be until an effective vaccine is widely available. What should investors be doing right now? Gordon Pape shares his latest thoughts. (for subscribers)
A retirement expert on low rates, the risks of dividend stocks and millennials in love with stock trading
Actuary Fred Vettese is among the first to produce a book on retirement planning that considers the pandemic’s effect on financial markets and the economy. Here’s a Q&A Rob Carrick did with him about some of the ways retirement planning and investing has changed as a result of COVID. (for subscribers)
The super simple ETF solution for a newbie investor
For those new to investing, it’s best to keep things simple. John Heinzl suggests one of the newer all-in-one ETFs that provide exposure to a globally diversified portfolio of stocks and bonds with a single purchase. (for subscribers)
Stock investors cast wary eye on yield rally
Expectations that a vaccine against the coronavirus could fuel a broad economic revival have spurred bets that bond yields could continue edging higher. That could potentially weaken the case for holding shares that have become expensive during the S&P 500′s 58-per-cent rally from its lows of the year. David Randall of Reuters reports. (for subscribers)
Low on stock: Pandemic-era IPO boom may not reverse equity shortage
Stock market bulls rejoicing at promising news on the COVID-19 vaccine and the prospect of a more predictable U.S. presidency may have another reason to celebrate: an anticipated surge in the net global supply of shares shows no sign of materializing. Sujata Rao of Reuters reports. (for everyone)
Others (for subscribers)
Monday’s analyst upgrades and downgrades
Monday’s Insider Report: Chairman invests over $366,000 in this winning stock after it nosedives
The highest yielding stocks on the TSX, plus risk data
What’s up in the days ahead
Copper stocks have been on a tear. David Berman will explain why the rally may be far from over.
Click here to see the Globe Investor earnings and economic news calendar.
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Compiled by Globe Investor Staff