We recently compiled a list of the 7 Best Alternative Fuel Stocks To Buy Right Now. In this article, we are going to take a look at where Constellation Energy (NASDAQ:CEG) stands against the other alternative fuel stocks.
The Future of Alternative Fuels
The alternative fuel and renewable energy industry is currently one of the most prominent sectors globally. Examples of alternative or renewable fuels include wind, solar, hydropower, and biofuel energy. According to the Business Research Company, the global alternative fuel or renewable energy market was valued at $1.10 trillion in 2024 and is projected to reach $1.55 trillion by 2028, growing at a CAGR of 8.8%. The growing environmental concerns and strict environmental regulations in many developed countries have significantly boosted the renewable energy sector and the energy generation market has seen an increase in installed capacity for renewable sources. The increasing power demand and energy consumption are also the key reasons for the growing demand in the alternative or renewable fuels industry.
According to the International Energy Agency (IEA), the global energy demand will increase by 3.4% annually by 2026, 85% of this additional demand is expected to come from China and India, with India’s electricity demand alone predicted to grow by over 6% annually until 2026 due to economic growth and rising air conditioning use. Southeast Asia is also expected to see a 5% annual increase in electricity demand through 2026. In the United States, a moderate rise in electricity demand is anticipated in the coming years, primarily driven by data centers. The electricity consumption by data centers, artificial intelligence, and cryptocurrency could potentially double to 1,000 TWh by 2026. IEA forecasts that the surge in electricity generation from low-emission sources will meet global demand growth over the next three years, with renewable energy expected to surpass coal as the leading energy source by early 2025.
The U.S. Energy Information Administration (EIA) anticipates a 17% growth in renewable energy deployment in 2024, potentially reaching 42 GW and contributing to nearly a quarter of the nation’s electricity generation. However, this growth may be accompanied by a temporary rise in renewable energy costs due to high financing, labor, and land expenses. However, tax credits from the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) are expected to sustain the competitiveness of solar and wind energy. Solar and storage markets are expected to expand further due to tax incentives and government support, particularly through programs like the DOE’s Loans Program Office. However, the wind and hydrogen energy sector may face challenges. Wind energy is facing challenges due to higher deployment costs and delays in getting approval, while hydrogen energy is struggling due to a lack of government incentive programs to support it.
Investing in a Greener Future
In a recent interview, Bruce Flatt, CEO of Brookfield Asset Management, emphasized that the decarbonization of the world is a major trend reshaping industries and investments. The company has established a dedicated renewable energy fund, initially raising $15 billion and planning to raise a second fund, that aims to support companies in reducing their carbon emissions by investing in and developing renewable energy projects. Flatt highlighted that they are one of the largest global builders and owners of renewable energy assets, including solar and wind power projects across 15 countries. The company’s approach involves not only building renewable energy infrastructure but also directly supplying renewable power to corporate clients, which helps these companies meet their net-zero commitments. The U.S. Inflation Reduction Act (IRA) has had a positive impact on the renewable energy sector. The IRA has provided substantial incentives for renewable energy projects, which has accelerated the pace of development. Flatt pointed out that the Act has increased the likelihood of projects being completed, with more projects moving forward in less time, which is beneficial to the renewable energy market. He mentioned that they target returns of approximately 9-10% for debt products and around 20% for equity investments in the renewable sector. Flatt is optimistic that returns will improve as the sector continues to grow and attract more capital.
Hanchen Wang, Equity Analyst at DWS Group, is optimistic about the renewables market’s future and believes that the market is becoming increasingly attractive to investors due to the long-term potential for stable returns and the alignment with global sustainability goals. Wang highlights that while renewable energy sources like wind, solar, and hydropower are expanding their market share, they are still facing challenges such as high initial costs and intermittency issues. He points out that advancements in technology, such as improved energy storage solutions and grid infrastructure, are critical to addressing these challenges and supporting the sector’s growth.
The alternative fuel and renewable energy industry is expected to grow significantly due to growing environmental awareness, supportive regulations, and technological advancements in alternative fuels like wind, solar, and hydropower. Despite facing challenges such as high initial costs and technological hurdles, the sector’s trajectory remains positive, driven by strong global demand and substantial investment opportunities.
Our Methodology
For this article, we used Clean Energy ETFs plus online rankings to compile an initial list of 40 alternative fuel stocks. From that list, we narrowed our choices to 7 stocks according to their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. We also included the market cap of these companies as of August 20. The list is sorted in ascending order of their hedge fund sentiment, as of June 30.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A close up of a wind turbine producing electricity as the sun sets.
Constellation Energy (NASDAQ:CEG)
Number of Hedge Fund Holders: 71
Market Capitalization as of August 20: $59.48 Billion
Constellation Energy (NASDAQ:CEG) is a supplier of power, natural gas, and energy products and services. The company serves a diverse range of customers, including residential, commercial, and industrial clients across North America. Constellation Energy (NASDAQ:CEG) is a major player in the renewable energy sector, particularly in nuclear power, and is committed to delivering clean and affordable energy. Constellation Energy (NASDAQ:CEG) is a leader in carbon-free energy and contributes 10% of the carbon-free energy consumed in the United States.
The company’s financial performance and strategic investments in clean energy solutions make it a compelling long-term investment. In Q1 2024, Constellation Energy’s (NASDAQ:CEG) net income per share increased from $0.29 in Q1 2023 to $2.78 in Q1 2024, while adjusted operating earnings doubled from $0.78 to $1.82. The company plans to buy back $1.5 billion worth of shares, which reflects management’s confidence in the company’s long-term prospects. The company is expected to grow its earnings by 45.84% this year. Industry analysts have a consensus on the stock’s Buy rating, setting an average share price target at $225.03, which represents a 16% upside potential from its current level.
Constellation Energy (NASDAQ:CEG) also plans to expand its clean energy portfolio and issued a $900 million, 30-year corporate green bond for initiatives such as nuclear upgrades, clean hydrogen production, and energy storage systems, which are crucial for increasing the production of clean, carbon-free energy. Major tech players such as Google, Microsoft, and Nucor Steel, have a long-term contract for the purchase of sustainable energy with Constellation Energy (NASDAQ:CEG), which will provide a stable, long-term revenue stream for the company. The company plans to invest $800 million in upgrading equipment at its Braidwood and Byron plants in Illinois which is expected to boost energy output by 158 megawatts. Additionally, the repowering of the Criterion wind project in Maryland will increase clean energy production by 79,000 megawatt-hours (MWh).
In its second quarter investor letter, ClearBridge stated the following regarding Constellation Energy (NASDAQ:CEG):
“On a regional basis, the U.S. and Canada was the top contributor for quarter, with U.S. electric utility Constellation Energy Corporation (NASDAQ:CEG) and U.S. rail operator CSX the lead performers. Constellation Energy is primarily a nuclear generation company and is the largest producer of carbon-free electricity in the U.S., serving states including New York, Illinois, Maryland, Pennsylvania and New Jersey. The company’s combined generation capacity is more than 32 GW and 90% of annual output is carbon free. Constellation has been a beneficiary of AI and subsequent power demand as its 24/7 base load nuclear generation can get premium contracts.”
Constellation Energy’s (NASDAQ:CEG) financial performance, leadership in carbon-free energy production, strategic partnerships, and ongoing investments in clean energy infrastructure provide a solid foundation for long-term growth. Constellation Energy (NASDAQ:CEG) is a compelling investment for those with a long-term perspective. The company is valued at $59.48 billion as of August 20. As of the second quarter, the stock is held by 71 hedge funds with stakes worth $3.78 billion. Coatue Management is the largest shareholder in the company and has stocks worth $982.90 million as of June 30.
Overall CEG ranks 3rd on our list of the best alternative fuel stocks to buy. While we acknowledge the potential of CEG as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CEG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.
