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It seems every week an investment bank plucks out several energy stocks it thinks could be big winners. This time, it’s the turn of RBC to highlight some energy equities it believes are on the cusp of great things.

Energy stocks

RBC updates global energy list

RBC’s “Global energy best ideas list” does what it says on the tin. It’s a grouping of energy stocks RBC thinks are about to overperform. It may also act as an entry point for investors looking to add power and energy to their portfolios.

“The RBC Capital Markets Global Energy Best Ideas List highlights our Research Analysts’ highest conviction names across the global energy sector at the time of their addition into the list,” RBC said in a note dated August 31st.

So far, the stocks on previous iterations of RBC’s list have performed well – at least according to the bank’s figures. Since the list’s launch in 2013, RBC states its listed picks have made 39.4% when weighted against the S&P Global Energy Sector ETF which is down 15%.

The equities spotlighted by RBC are not purely renewable energy stocks, despite the ongoing worldwide shift away from fossil fuels. Oil & gas stocks still make a case as they recover following the pandemic-induced battering they took across 2020 and into early 2021.

It’s a global round-up of stocks too, covering super majors, US power and utility firms, Indian solar companies and more.

Energy stocks to watch

According to RBC, the below stocks are worth watching:

  • Neste
  • Shell
  • NextEra energy
  • Algonquin Power & Utilities
  • AZRE
  • California Resources Corp.
  • Drax
  • ConocoPhillips
  • Equinor

Let’s start with Shell. The Anglo-Dutch supermajor is “undervalued”, according to RBC, and is expected by the bank to return 50% of its current market cap to investors up to 2026. Strong cash flows are the key to Shell’s success, RBC says, with a 14% free cash flow yield between now and 2025.

Shell is the big hydrocarbons name on the list, but the bulk of its constituents come from firms powering and pioneering green energy. The industry’s ongoing growth suggests key players will turn into opportunity-rich stocks.

Norway’s Equinor, the world leader in offshore wind farms and turbine manufacturing, is forecast to improve its free cash flow yield this year. That’s why it makes the list.

India’s AZRE is becoming a solar-power leader in South Asia. RBC believes AZRE will benefit greatly from a national Indian renewables push, as it snags up government contracts. The bank’s analysis also highlighted AZRE’s strong land buying track record, providing a “significant” advantage over competitors, as it snaps up fresh acreage on which to build new solar projects.

NextEra Energy has seen its stock underperform, but there is a solid base to build from, according to RBC.

“We expect the overall industry will see accelerated growth, and that NEE will maintain or further its standing as a renewable mega player,” RBC said.

Power and utility suppliers also fall into the energy ecosystem. In this instance, RBC flagged California-based Algonquin Power & Utilities as a stock with high growth potential. Its utility business already serves one million US customers, and it could use President Joe Biden’s clean energy reforms as a springboard onto greater revenue generation.

British power company Drax’s recent acquisition of renewable energy firm Pinnacle, drew RBC’s attention, alongside its bioenergy with carbon capture and storage development efforts. The BECCS process, as it’s known, extracts energy from biomass and stores the resultant carbon.

RBC said it sees Drax’s balance sheet strengthening in the long term.

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