There are some stocks that can use socially responsible corporate decisions to enhance the business and boost shares in the long term, and one sold-off energy name now fits the bill, according to Morgan Stanley. Analyst Stephen Byrd updated his list of top rate-of-change stocks, which refers to a screening framework used to find companies making changes that are good for society and can also improve the business and boost the stock. In this model, the firm looks for rising stars in the environmental, social and governance space whose work and plans may not yet be fully appreciated by investors as opposed to companies already viewed as leaders. His Americas list of top rate-of-change picks now includes AES . AES is working toward having no exposure to coal by 2025. It’s also growing capacity for renewable energy three-fold through 2027, giving it one of the largest renewable pipelines in the world. Byrd pointed to the company’s leadership in new technology, including energy storage and carbon-free electricity. Potential catalysts for the stock include an announcement of coal assets being disposed, details on the Inflation Reduction Act’s hydrogen tax credits and any new project announcements related to green hydrogen. He also noted AES’ “strong financial track record,” noting the company has grown adjusted earnings per share and free cash flow at 9% and 7% compound annual rates, respectively, between 2017 and 2022. The energy stock has tumbled more than 28% this year after sidestepping 2022’s bear market and finishing the year more than 18% higher. Still, the majority of analysts have buy ratings on the stock, with the average price target implying shares could rally more than 40% in the next year, according to Refinitiv. AES YTD mountain AES, year to date The other stocks in his top ideas list for the Americas — Deere , Eastman Chemical , New Fortress Energy and Nu Holdings — remained. Some of these companies have announced more socially responsible business plans that could in turn improve performance, with artificial intelligence in focus amid the broader market craze. AI and real-time sensing could help improve decision-making around food distribution and waste, Byrd said. Deere has a product called Combine Advisor to help farmers manage grain loss and quality using historical data through AI and hardware, and Byrd said the company could do well given its large market share will mean there will be a large data pool. Byrd also said the company has a competitive advantage in precision agriculture already because of its “early mover” attitude when it comes to investing in and adopting digital technology to improve farming. Digital banking platform Nu Holdings stands out from competitors because it has a sophisticated underwriting model that uses AI and machine learning to leverage data and improve underwriting, customer experience and the company’s products. That has put the company’s nonperforming loan ratio, which measures the share with borrowers in default, below average in Brazil. AI can also help reduce fraud in the bank, he said. Deere is down almost 5% this year, while Nu Holdings has surged more than 80%. — CNBC’s Michael Bloom contributed to this report.
Source: cnbc.com
