Best energy, utility stocks to own for rest of year, according to UBS

UBS released a list of its highest-conviction energy picks for the remainder of the year, ranging from a newly touted artificial intelligence play to an oilfield services leader. In a Thursday note, analyst Josh Silverstein listed the firm’s “most compelling” buy-rated stocks to own across the energy and utilities sectors, including Suncor Energy , Coterra Energy , SLB , NextEra Energy and First Solar . Energy and utilities sectors are faring well this year, gaining 12.5% and 8.9%, respectively, while the broader market has advanced about 9.3%. The firm’s direct beneficiaries of AI-driven electricity and data center demand are NextEra Energy and First Solar, the first being its top pick in the electric utilities subsector and the latter in alternative energy. Analyst William Appicelli, who covers NextEra for the firm, pointed to the renewable energy company’s “leading position in renewables development, strong balance sheet (19% [funds from operations]/debt in ’23) and stable top quartile growth utility.” Catalysts for the stock include NextEra’s June 11 biannual investor meeting and any clean energy contract announcements that hike up the company’s development capacity upside, Appicelli added. His $90 price target suggests shares could jump 15.1%. This year, the stock is up almost 30%. First Solar is another favorite of UBS, which assigned the stock a $350 price target that implies 26.5% upside. Shares have jumped roughly 52% this year. “FSLR’s unique technology is ideally situated for two of the largest on-going structural themes: AI driven electricity demand growth and increasing U.S. protectionism,” analyst Jon Windham said, noting that the company is currently tripling its U.S. manufacturing capacity. “FSLR is a differentiated technology company and deserves a higher multiple given the strong underlying demand, in our view.” Windham’s bullish thesis on the stock partly rests on First Solar’s share of the utility-scale market — the company had 35% market share in 2022 — as Big Tech companies look to buy more renewable power to match their sky-high electricity consumption tied to data centers. In oil services and equipment, SLB, formerly Schlumberger, is Silverstein’s top pick with a $68 price target, implying a whopping roughly 49.2% potential upside. The stock, which has fallen 12% this year, is trading at a 7x discount to its historical two-year forward P/E multiple during prior upcycles, he said. Silverstein’s positive outlook on SLB is driven by several characteristics of the company, including SLB’s high margin Digital and Integration unit, which he said supports corporate-level double-digit EBITDA growth through 2027, as well as the company’s improved balance sheet, which allows for more than 50% of its free cash flow to go toward shareholder returns. SLB was the world’s largest offshore drilling company and offshore drilling contractor by revenue, as of 2022. Other energy and utility favorites UBS named include Coterra and Suncor Energy .