Air Products (NYSE:APD), EnerSys (NYSE:ENS) and Emerson Electric (NYSE:EMR) are just three of the stock recommendations detailed in these exclusive interviews with award winning investment professionals.
Timothy Winter, CFA, is a portfolio manager of The Gabelli Utilities Fund, The Gabelli Utilities Trust, The Gabelli Global Utility & Income Trust, and the Love Our People and Planet ETF and a research analyst covering the utilities industry for GAMCO Investors.
He joined the firm in 2009 and has over 25 years of industry experience.
Previously he served over 15 years as research analyst covering utilities at AG Edwards, as well as Jesup & Lamont and SM Research.
Mr. Winter has received numerous awards and recognition for his work in the industry.
He was a three-time All-Star Wall Street Journal winner and five-time ranked number-one Electric Utility Team by Institutional Investor.
In 2018 he received Thomson Reuter’s U.S. Analyst Award and was ranked the number-one stock picker in the electric utility sector and water utility sector and number two in the gas utility sector.
Mr. Winter holds a B.A. in economics from Rollins College and an MBA in finance from Notre Dame. He is a CFA charterholder.
In this 2,424 word interview, exclusively in the Wall Street Transcript, the award winning investment professional details his stock pick recommendations including Air Products (NYSE:APD).
“I am a portfolio manager for Gabelli Funds; specifically, three utility funds: the Gabelli Utilities Fund, an open-end fund, the Gabelli Utility Trust, a closed-end utility fund, and the Gabelli Global Utility and Income Trust, a global closed-end utility fund, and also a co-manager of a clean energy ETF — exchange traded fund — called Love Our Planet & People. And I’m also the firm’s utility analyst.”
The Air Products (NYSE:APD) advocacy is determined from the fast growing hype for hydrogen.
“…Green hydrogen is getting significant political and regulatory support and what many call game-changing support in the form of tax credits.
The IRA established a $3/kg tax credit. But it’s still an early technology and the cost curve still needs to come down significantly before it becomes widespread in usage.
But every electric and natural gas utility is piloting and testing hydrogen and electrolysis, which is the process of converting water or H2O to hydrogen.
If renewable energy is used to power the electrolysis the hydrogen is considered green.
Gas utilities are blending green hydrogen into the natural gas supply and putting it through the pipes.
In some areas, as much as 15% is being successfully blended.
Over time, we expect the blend to be more meaningful and could eventually replace natural gas.
Every electric utility is experimenting with piloting natural gas-fired generation with hydrogen.
And the newer plants have the capability of converting to hydrogen.
In 2021, the Infrastructure and Jobs Act allocated $8 billion to $10 billion to establish 10 regional hydrogen hubs, and the DoE — the Department of Energy — is currently trying to decide where these hydrogen hubs are going to be.
The utilities and pipelines are vying for hubs in their various service areas.
So that will also be a big driver of hydrogen going forward.
Investors have to be patient.
Currently hydrogen is not playing a meaningful part of the utility sector or the clean energy sector but there is great hope for hydrogen.”
Hydrogen may be cutting edge but the recommendations for stocks like Air Products (NYSE:APD) is not.
“The safer, more conservative ways to play hydrogen include the leading industrial gas companies that are heavily investing in hydrogen, like Air Products (NYSE:APD), Linde (NYSE:LIN) and Chart Industries (NYSE:GTLS).
They’re going to be big hydrogen players but also currently have other profitable and growing business segments as well as the financial strength and resources to invest capital without the volatility and risk in pure-play hydrogen stocks, like Plug Power (NASDAQ:PLUG), Bloom Energy (NYSE:BE) or Ballard Power (NASDAQ:BLDP).”
Greg Wasikowski, CFA, is a Senior Analyst, Associate Partner and Co-Founder of Webber Research & Advisory, with a focus on renewables, infrastructure and alternative fuels.
Mr. Wasikowski helped lead Webber Research to a runner-up finish in Institutional Investor’s (I.I.) 2020 All-America Research Team, becoming the only new platform to receive ranked I.I. recognition across any of the survey’s 60+ sectors.
Prior to co-founding Webber Research & Advisory, Mr. Wasikowski was a senior member of the #1 I.I.-ranked Wells Fargo LNG, Shipping & Equipment Leasing team in 2019, 2018, and 2017, with a focus on energy infrastructure and shipping.
Mr. Wasikowski began his career as an accounting consultant for RSM, a global leader in audit, tax and consulting services, where he focused on middle-market, growth-focused organizations in the U.S.
Mr. Wasikowski was a student athlete at Bucknell University, where he majored in Accounting and Financial Management while also captaining Bucknell’s Division 1 baseball team.
Mr. Wasikowski is also a CFA Charterholder.
In his 2,306 word interview, exclusively in the Wall Street Transcript, the award winning professional investor lists his recommendations and details the reasoning behind them.
“Renewables and cleantech, alternative fuels — those companies tend to be more growth oriented than value oriented.
So, when thinking about higher interest rates and inflation, supply chain constraints, everything we’ve seen over the last 12 to 18 months have been big headwinds for those companies.
Particularly when you think about the ones that have yet to earn positive cash flow or EBITDA; instead of a next 12 months’ earnings multiple, they tend to trade on an FY3 or FY4 multiple, which is essentially a promise for “later.”
And so, higher discount rates and shifting breakeven timelines have kind of hurt the sentiment across the board for companies like that.
Some examples in our coverage would be Plug Power (NASDAQ:PLUG), Ballard (NASDAQ:BLDP), Clean Energy Fuels (NASDAQ:CLNE) and Fusion Fuel (NASDAQ:HTOO), which is a smaller company.
They’re companies that really haven’t achieved their profitability ramp yet.
So they are probably the ones that get hurt the most by the higher interest rates and general cost inflation.”
This top tier investment professional is a big believer in the Reading, Pennsylvania company EnerSys (NYSE:ENS).
“Long term, I really like all of the names in our coverage.
Thinking more short term, the name that probably comes to mind most in the short and medium term is EnerSys (NYSE:ENS).
That’s the name that we just upgraded from “market perform” to “outperform” yesterday. And we think, without a doubt, they come to mind for near-term execution and improvement.
They’ve had a tough, tough couple of years, with inflation and supply chain constraints really hammering their margins.
But they’ve done a tremendous job recapturing those costs and improving their margins.
They have indirect and direct exposure to all those themes, particularly electrification.
They’re soon to commercialize an EV charging product with battery integration, which I think is a really, really interesting product.
So they’re interesting to watch, because one of their primary business segments is technically a little bit more GDP-linked than some of the other names in our coverage.
And that’s something that we’ll continue to watch.
But given their backlog and their general momentum over the last six months, and their general handle over their costs, it’s enough to get confidence in them.”
The all star investment professional details his affinity for EnerSys (NYSE:ENS) further.
“The EnerSys (NYSE:ENS) DC fast-charging product that they have, with the battery integration, is definitely really interesting.
And it really solves, or at least is poised to solve two of the main problems in the EV charging market: one being grid reliability, and two being just overall product reliability.
EnerSys (NYSE:ENS) is really known for their trusted tech.
They have thousands and thousands of hours of successful uptime with their products.
Some of these products are actually used by NASA in satellites and mission-critical submarines for the military. They do some really interesting stuff.
So, the point being that they are a trusted technology and they don’t put products out there that don’t work.
That should be able to alleviate some concerns there.
And then mostly, it’s the grid reliability.
It’s something that we’ve all heard a lot about, that with the explosion of EVs and EV charging, the grid might have trouble handling some of that demand.
But I think some people don’t quite fully realize the scale with which charging and fast charging, in particular, puts on the grid.
If you hook a fast charger up, it’s like simultaneously putting on a supermarket or five to six residential homes on the grid just with a flick of a switch.
And that’s a lot of stress and can’t be managed everywhere.
So, thinking about alternative solutions, like a battery-integrated product that can draw power at non-peak times, store it, and then be able to satisfy demand during peak hours that’s still charging at ultra fast rates, while also doing peak shaving and just overall energy management on the station.
EnerSys (NYSE:ENS) is introducing a product like that, and we think it can be a really, really interesting product that solves some issues in the EV charging space.
Along those lines, another alternative solution to EV charging, we’re starting to see some dual-fuel charging stations.
Still in early days, but thinking about incorporating alternative fuels, something like hydrogen as long duration storage in a buffer for EV charging stations.
It’s in the same spirit as a battery, but using hydrogen and fuel cells to create electricity to charge battery electric vehicles themselves, while also having hydrogen available on site for refueling hydrogen electric vehicles.”
Hugh Wynne is Co-Head of Utilities and Renewable Energy Research at SSR LLC, an independent research firm providing in-depth analyses of industry trends for institutional investors in both the public and private equity markets.
SSR also provides advisory services to electric utilities, utility regulators and the suppliers of power generation and energy storage equipment.
Prior to joining SSR, Mr. Wynne was Managing Director and Senior Research Analyst at Bernstein Research, where he was responsible for the regulated utility, independent power and renewable energy sectors.
In that role, he was ranked nine times by Institutional Investor in its annual All-American Research Team poll.
Mr. Wynne’s power sector research has focused on the critical long-term trends driving structural change in the industry, including the scale, structure and cost of the investment in renewable generation and energy storage required for states and utilities to achieve their CO2 reduction targets; the impact of increasingly stringent environmental regulations on the coal, oil and gas-fired fleets; and the challenges that the growth of renewable generation presents both to competitive power markets and the traditional utility business model.
Before joining Bernstein, Mr. Wynne was Vice President of Finance at ABB Energy Ventures, the power project development subsidiary of ABB Asea Brown Boveri, where he was charged with making equity investments in and arranging non-recourse financing for major power generation and transmission projects globally.
Previously, Mr. Wynne was a Senior Vice President at Lehman Brothers’ Utilities and Project Finance Group.
Mr. Wynne holds a B.A. degree from Harvard University, where he graduated magna cum laude and was elected to Phi Beta Kappa, and a M.A. degree in economics from Stanford University.
“It’s possible that companies like Emerson Electric (NYSE:EMR), Schneider (OTCMKTS:SBGSY), ABB (OTCMKTS:ABBNY), will be looking at materially larger markets for their products in the coming decades.
And yet that sector doesn’t appear to have attracted the sort of hype and investor enthusiasm that some of the more readily identifiable renewable generation producers have gotten.
There are also investment opportunities in areas like very early-stage technologies: green hydrogen, battery storage, small modular nuclear reactors.
But those are very difficult investments to make now, because at this point, we don’t know which will become the dominant technologies.
Consequently, betting on those stocks now is highly speculative.
What’s overlooked in all this is that the utility sector now enjoys an attractive and firmly entrenched growth rate, reflected in rate base growth of 7% to 8% annually across the industry.
And that seems to be driving earnings per share growth of about 6% to 8% — a growth rate that is likely to persist over the next two decades.
Unusually among stocks with attractive long-term growth prospects, utilities have tremendous barriers to entry.
They are regulated monopolies in their service territories, and their returns don’t get whittled away by competition.
Their returns are set by regulators who have historically been quite generous.
So, the appeal of the utility sector today is that it combines a long-term trajectory of rapid growth with substantial barriers to entry, allowing it to maintain lucrative returns on capital in the long run.
A second important advantage of the regulated utilities is that they historically offered the most stable returns during periods of geopolitical volatility.
U.S. utilities no longer have any international assets to speak of.
Domestically, they’re providing an essential service under regulatory protection.
During downturns in the economic cycle, electricity and gas are necessities subject to regulated prices.
So utilities offer a combination of long-term growth, stable and attractive returns, and defensive positioning against geopolitical and economic instability.
I think these advantages will become more appreciated over time.”
Get all the details on the stocks recommended by these award winning investors, exclusively in the Wall Street Transcript.