The Inflation Reduction Act, or IRA, turned one year old. The law includes billions for clean energy in the U.S. Everything from EVs to solar panels is covered. All the spending by the federal government will lead to even more spending by private entities, benefiting several industries for years to come.
There are plenty of stocks to play all that. BofA Securities Global Research team identified a bunch of stocks across several themes that can be winners. Two dozen across three of BofA’s themes stood out to Barron’s.
“The IRA is working,” reads part of BofA’s Thursday report. The broker counts more than 270 new clean energy projects worth some $130 billion announced since the bill was passed in the summer of 2022. Only some of that is represented by the roughly $500 billion the U.S. government will be adding to the pot.
For the renewable energy theme, BofA highlighted a dozen stocks rated Buy by BofA analysts with IRA-linked potential. They include solar tech companies
Array Technologies
(ARRY) and
FTC Solar
(FTCI), engine maker
Cummins
(CMI), electrical equipment supplier
Eaton
(ETN),
General Electric
(GE),
Honeywell International
(HON),
ON Semiconductor
(ON), utilities
Public Service Enterprise Group
(PEG) and
Vistra
(VST), solar panel suppliers
Sunnova Energy
(NOVA) and
Sunrun
(RUN), as well as wind energy player
TPI Composites
(TPIC).
Energy storage and grid management are other areas where IRA money is going. Buy-rated stocks benefiting included: Cummins, Eaton, GE, Honeywell, ON Semi, and Vistra again, as well as utility
Ameren
(AEE), plant automation provider
Aspen Technology
(AZPN), fuel cell maker
Bloom Energy
(BE), construction equipment giant
Caterpillar
(CAT), engineering solutions provider
KBR
(KBR), electronics supplier
Teledyne Technologies
(TDY), and utility
Xcel Energy
(XEL).
| Company / Ticker | Market Value ($bil) | Recent Price | 2024E PE | 1-Yr Change | Theme |
|---|---|---|---|---|---|
| Array / ARRY | 2.9 | 19.21 | 15.5 | 57% | Renewable, Grid |
| FTC Solar / FTCI | 0.4 | 3.45 | 21.0 | -21 | Renewable |
| Cummins / CMI | 36.7 | 259.31 | 13.1 | 26 | Renewable, Grid, EV |
| Eaton / ETN | 83.9 | 210.6 | 22.6 | 58 | Renewable, Grid, EV |
| GE / GE | 121.3 | 111.37 | 27.7 | 110 | Renewable, Grid |
| Honeywell / HON | 138.3 | 207.86 | 20.3 | 17 | Renewable, Grid, EV |
| ON Semi / ON | 42.0 | 97.17 | 18.3 | 61 | Renewable, Grid, EV |
| Public Service / PEG | 32.1 | 64.42 | 17.2 | 8 | Renewable |
| Vistra / VST | 10.2 | 27.31 | 8.0 | 16 | Renewable |
| Sunnova / NOVA | 2.6 | 22.54 | N/A | 11 | Renewable |
| Sunrun / RUN | 4.7 | 21.62 | N/A | -11 | Renewable |
| TPI / TPIC | 0.4 | 10.28 | N/A | -15 | Renewable |
| Ameren / AEE | 22.7 | 86.6 | 18.3 | 1 | Grid |
| Aspen / AZPN | 11.4 | 175.66 | 26.5 | -3 | Grid |
| Bloom / BE | 3.6 | 17.43 | 57.0 | -4 | Grid |
| Caterpillar / CAT | 134.3 | 260.69 | 14.2 | 45 | Grid |
| KBR / KBR | 8.7 | 64.27 | 17.6 | 30 | Grid |
| Xcel / XEL | 35.4 | 64.36 | 17.6 | -5 | Grid |
| Teledyne / TDY | 19.1 | 406.83 | 19.6 | 2 | Grid |
| Rivian / RIVN | 24.1 | 25.69 | N/A | -22 | EV |
| Ford / F | 0.4 | 3.45 | 7.8 | 10 | EV |
| GM / GM | 54.5 | 39.2 | 6.1 | 13 | EV |
| Livent / LTHM | 5.0 | 27.64 | 11.6 | 22 | EV |
| Sigma / SGML | 5.4 | 38.09 | 8.0 | 151 | EV |
E=estimate; N/A=not applicable
Source: FactSet
Electric transportation is another IRA theme. The BofA list of stocks for the clean vehicle theme doesn’t include
Tesla
(TSLA) though. Analyst John Murphy rates shares Hold. He rates
Rivian Automotive
(RIVN),
General Motors
(GM), and
Ford Motor
(F) shares Buy. Other stocks that fit the trend according to BofA are repeats including Cummins, Eaton, Honeywell, and ON Semi. All supply light and heavy-duty vehicle makers.
Clean vehicles need lithium ion batteries and two lithium producers that made the BofA list are
Livent
(LTHM) and
Sigma Lithium
(SGML).
The average price-to-earnings ratio, based on earnings estimates for the coming 12 months, is 24 times. It ranges from a low of six times for GM stock to a high of 152 times for FTC Solar. Sunrun, Sunnova, TPI, Rivian, and Bloom aren’t expected to be profitable in the coming 12 months.
Shares have returned an average of 28% over the past 12 months. The
S&P 500
and
Nasdaq Composite
have returned about 18% and 24%, respectively. The best stock has been Sigma Lithium, returning 169%. The worst has been Rivian, dropping 22%.
It’s an eclectic group. That makes sense since this screen is based on a theme versus looking for stocks with the highest growth rates or the lowest price-to-earnings ratios.
A stock screen, like this one BofA ran based on the theme of a new piece of U.S. legislation, is just a starting point for investors. If the theme and ideas resonate, investors can do more work.
Write to Al Root at [email protected]
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