Clean energy stocks are set to be the big winners of the sweeping Inflation Reduction Act just signed by Biden, Morningstar says

  • Clean-energy stocks are set to benefit from the $370 billion Inflation Reduction Act, said Morningstar. 
  • Hydrogen fuel cell manufacturer Plug Power is on the research firm’s list of federal spending beneficiaries.  
  • Lithium producers should also benefit with demand set to outstrip supply. 

Residential solar and lithium stocks are among those in the clean-energy space that will benefit the most from the newly signed $370 billion Inflation Reduction Act, according to Morningstar. 

President Joe Biden on Tuesday signed into the law the Inflation Reduction Act that was passed by the House last week. 

Among its features, the law has a 10-year extension of solar and wind tax credits and incentives to support new technology, with hydrogen and energy storage set to be the greatest beneficiaries, Dave Sekera, Morningstar’s chief US market strategist, said in a note published Wednesday

There are also incentives for domestic makers of solar panels and equipment, products that had previously been largely imported. 

The investment research firm said First Solar, Plug Power, and SunPower are stocks that are both fairly valued and expected to experience the greatest positive impact on their businesses as a result of the Inflation Reduction Act. 

“As we incorporate the projected impact of these provisions across our stock coverage universe, we have increased our valuations by up to 20%, or more, depending on the company and its specific product portfolio,” Sekera said. 

“Yet, in many cases the market has gotten ahead of itself and the price has surged ahead of our view of the long-term, intrinsic valuation of the company,” he said. 

Investing in lithium producers is one area to capture further upside potential from the newly authorized spending as many clean energy stocks were already fully valued to overvalued, the firm said.  

Morningstar said the government will provide subsidies for electric vehicles and plug-in hybrids, as long as a minimum proportion of key minerals, including lithium, comes from the US or its free trade partners. 

“We think this will benefit all lithium producers due to an increase in demand, which should keep the market undersupplied longer,” perhaps through the rest of the decade. 

Albemarle, Lithium Americas, Livent and Sociedad Quimica y Minera de Chile are in Morningstar’s coverage of lithium producers. 

Proponents say the new law will cut the federal deficit by $300 billion over 10 years and reduce carbon emissions by about 40% by 2030. Such reductions will be paid for in part by setting a minimum corporate tax rate of 15% for companies that generate at least $1 billion in revenue and through a 1% tax on share buybacks. 

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