What makes NextEra (NEE) one of the best renewable energy stocks to buy right now?

We recently made a list 10 Best Renewable Energy Stocks to Buy, According to Hedge Funds. In this article, we’ll take a look at how NextEra (NYSE:NEE) stacks up against other renewable energy stocks.

The future of renewable energy

The renewable energy industry is currently one of the most prominent sectors in the world. Examples of renewable fuels include wind power, hydropower, biofuels, and solar power. According to a report by Business Research Company, the global renewable energy market was valued at $1.10 trillion in 2024 and is expected to reach $1.55 trillion by 2028, growing at a compound annual growth rate (CAGR) of 8.8%. Environmental concerns and stringent environmental regulations in many developed countries have boosted the sector significantly, and the power generation industry has seen an increase in the installed capacity of renewable energy sources. The increase in energy demand and energy consumption are also some of the key reasons for the growing demand in the renewable energy market.

According to the International Energy Agency (IEA), global energy demand is forecast to grow by 3.4% per year through 2026. About 85% of demand is expected to come from China and India. Energy demand in India alone is forecast to grow by 6% per year through 2026, driven by strong economic growth and rising household consumption. Southeast Asia is expected to see electricity demand grow by 5% per year through 2026. In the United States, electricity demand is expected to grow moderately in the coming years, largely due to growing demand for data centers. Electricity consumption from data centers, artificial intelligence, and cryptocurrencies could potentially double to 1,000 TWh by 2026. According to the IEA, growth in low-carbon electricity generation is expected to meet global demand growth over the next three years, with renewable energy set to overtake coal as the leading energy source by early 2025.

The U.S. Energy Information Administration (EIA) projects that renewable energy deployment will increase by 17% in 2024, potentially reaching 42 GW and contributing nearly a quarter of the nation’s electricity generation. However, this growth could come at the cost of renewable energy due to high financing, labor, and land costs. Despite this, tax breaks from the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) are likely to keep solar and wind competitive. The solar and storage markets are expected to continue to expand, fueled by tax incentives and government support, particularly through programs such as the DOE Office of Loan Programs. On the other hand, the wind and hydrogen sectors could face challenges. Wind power faces higher implementation costs and delays in obtaining approvals, while hydrogen power struggles with a lack of government incentives to support its development.

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Investing in renewable energy

Hanchen Wang, equity analyst at DWS Group, is optimistic about the future of the renewable energy market, noting its growing appeal to investors due to the potential for stable long-term returns and alignment with global sustainability goals. Wang emphasizes that while renewable energy sources such as wind, solar and hydropower are gaining market share, they still face challenges such as high upfront costs and intermittency issues. He emphasizes that technological advances, including better energy storage solutions and improved grid infrastructure, are essential to overcome these obstacles and support the sector’s growth.

In a recent interview, Bruce Flatt, CEO of Brookfield Asset Management, highlighted the significant impact decarbonization has on industries and investments, calling it a major trend that is changing the landscape. The firm launched a dedicated renewable energy fund, initially raising $15 billion, with plans to launch a second fund. This initiative aims to help companies reduce their carbon emissions by investing in and developing renewable energy projects. Flatt emphasized that the firm is one of the largest global developers and owners of renewable energy assets, with solar and wind projects in 15 countries. The firm’s strategy includes not only building renewable energy infrastructure, but also delivering renewable energy directly to corporate customers, helping them meet their net-zero emissions commitments. The U.S. Inflation Reduction Act (IRA) has had a positive impact on the renewable energy sector, providing significant incentives that have accelerated project development. Flatt noted that the act has increased the likelihood of project completion, and more projects are being built at a faster pace, which is good for the renewable energy market.

The renewable energy sector is poised for significant growth, fueled by growing environmental awareness, favorable regulations, and advances in technologies such as wind, solar, and hydropower. While the industry faces challenges, including high upfront costs and technological barriers, its overall outlook is positive. With that in mind, here are the 10 best renewable energy stocks to buy, according to hedge funds.

Our methodology

In this article, we scanned clean energy ETFs and online rankings to compile a preliminary list of 50 renewable energy stocks. From this list, we narrowed our selection to the 10 stocks that were most widely held by hedge funds. Hedge fund data was pulled from our database of 912 elite hedge funds through Q2 2024. We also included the market capitalization of these companies as of September 2. The list is sorted in ascending order by hedge fund sentiment through Q2.

Why do we care about what hedge funds are doing? The reason is simple: Our research has shown that we can outperform the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (more details here).

A wind turbine whose blades rotate, producing clean, renewable energy.

NextEra (NYSE:FROM HOME)

Number of hedge fund holders: 73

Market capitalization as of September 2: $165.47 billion

NextEra is the world’s largest producer of wind and solar energy and a leader in battery storage technology. NextEra’s subsidiaries, including Florida Power & Light, serve millions of customers, and the company’s investments in clean energy are helping to transition to a low-carbon economy. The company has divided its operations into two main businesses. The first is Florida Power & Light (FPL), which is a utility company. The second main business is NextEra Resources (NEER), which is one of the world’s largest producers of renewable energy and a leader in battery storage technology. NEER focuses on developing, building and operating long-term assets, primarily in the United States and Canada.

The company has over two decades of experience in developing and operating renewable projects, which gives it a significant competitive advantage. The company held a 56% share of the wind market in 2022 and a 38% share of the renewable market in 2019-2022. NEER manages a clean energy portfolio of approximately 34 GW, of which 24 GW is from wind, 7 GW from solar, and 2 GW from nuclear. NEER also has 1 GW of battery storage capacity in 16 states in the United States.

Nearly 93% of the company’s revenue comes from long-term power purchase agreements with data centers and technology companies, which provide stable and predictable cash flows. The company’s financial performance remains solid, with adjusted earnings increasing 10.8% in the second quarter of 2024, driven by investments and a growing renewable energy portfolio. Looking ahead, NEER expects its earnings per share (EPS) to grow 6-8% annually through 2027 and plans to increase dividend payments by 10% annually. In its second-quarter investor letter, ClearBridge noted the following about NextEra (NYSE:NEE):

NextEra (NYSE:NEE) is valued at $163.56 billion as of August 20. The stock is held by 81 hedge funds, worth $2.10 billion as of Q2. As of June 30, the company’s largest shareholder is GQG Partners, worth $884.56 million.

Total NEE takes 2nd place on our list of the best renewable energy stocks to buy. While we recognize NEE’s potential as an investment, our belief is based on the belief that AI stocks offer a better chance of achieving higher returns in a shorter time frame. If you’re looking for an AI stock that has more promise than NEE but is trading at less than 5 times earnings, check out our report on cheapest AI action.

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Disclosure: None. This article was originally published on Insider Monkey.