Citigroup: Expect Fed to cut interest rates, bullish on green energy stocks
1min read As the Federal Reserve is set to start cutting interest rates, Citigroup's US equity strategist Drew Pettit said the outlook for clean energy infrastructure is expected to be boosted, ushering in a "new era of green investing".
Drew Pettit said: "Lower rates should help green energy stocks. I do think we've actually seen a fundamental inflection point in these stocks, and their growth should re-accelerate and outpace the broader market. So the short-term catalysts can get us back into green investing, and the long-term catalysts can keep these companies sustainable."
Drew Pettit believes the industrial sector will definitely play a role in this new era, saying: "I actually think industry has played a huge role in the green transition. We need to improve, change manufacturing processes so we can use our resources effectively. So industry is a big part of the green revolution."
It is worth noting that Citigroup recently added water treatment and hygiene company Ecolab Inc (ECL.US) and infrastructure engineering company IDEX Corp (IEX.US) to its "Theme 30" recommendation list, saying these two stocks still have good prospects in the interest rate environment or political situation.
Citigroup said in a client report in late August that three directions in the green energy sector - clean water, energy efficiency and nuclear power - are less sensitive to interest rates and politics, attracting investor attention. Drew Pettit said: "It is unlikely to rely solely on interest rate and political catalysts to support the medium-term performance of 'green' stocks. Therefore, we focus on three key fundamental characteristics - positive cash flow, visible profitability and accelerated sales/EBITDA growth."
Citigroup described Ecolab Inc as having "positive free cash flow" and "profitability", and expects its sales and earnings to continue to grow to 2026. The bank raised its rating on Ecolab Inc's stock to "buy" from "neutral" in July, with a target price of $265. At the same time, Citigroup expects IDEX Corp to rise about 35% in the next 12 months to $277 per share.