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Why these industrial giants are betting on the shift to clean energy
As the clean-energy transition accelerates in the U.S. on the back of an influx of federal spending, we’re increasingly bullish on big industrial companies that view the shift as an opportunity for growth. Club holdings Linde (LIN), a specialty chemicals maker that has invested heavily in hydrogen projects, and conglomerates Honeywell International (HON) and Caterpillar (CAT) all fit the bill of traditional manufacturing firms that are capitalizing on the growing push for sustainable energy. “In times of uncertainty like what we have today, we always like to turn back to secular themes — structural changes in society or the economy that make for opportunities that are not tied to the classic business cycle — as areas to invest in,” said Jeff Marks, director of portfolio analysis at the Investing Club. “Right now, some of our favorite secular themes are the mega trends benefitting from a wave of federal spending — and the energy transition is one of those themes,” he explained. LIN YTD mountain Linde (LIN) year-to-date performance Linde, one of the world’s largest producers of industrial gasses, should be a prime beneficiary of the Inflation Reduction Act (IRA). Passed in 2022, the law provides $369 billion in funding for projects around fighting climate change and accelerating the U.S. transition to clean energy — an expected tailwind for Linde’s clean hydrogen projects . In April, Linde signed an agreement with ExxonMobil (XOM) for the off-take of carbon dioxide associated with Linde’s clean-hydrogen production facility. This is the process of carbon sequestration, or removing carbon from the atmosphere and storing it, in order to cut back on emissions. As part of this long-term partnership, Exxon will store and transport up to 2.2 million metric tons of carbon dioxide each year from Linde’s facility. During Linde’s recent earnings call , management also said it saw the potential for $50 billion in global investment decisions related to clean energy over the next decade, including clean hydrogen projects in the U.S. resulting from IRA funds. Wall Street’s been upbeat about the IRA’s expected impact on industrial gas names, as well. Shortly before the bill was signed into law in August 2022, analysts at BMO Capital Markets called the IRA a tailwind for the sector. Later, Bank of America analysts listed Linde as a stock to gain from the historic climate bill, according to a research note in July. CAT YTD mountain Caterpillar (CAT) year-to-date performance Elsewhere, Caterpillar has said the “energy transition and growing global energy demand are increasing [it’s] total addressable market and furthering opportunities for long-term profitable growth.” Caterpillar is a large manufacturer of construction equipment, along with off-highway diesel and natural gas engines. As more spending goes into climate initiatives, there will be more plants and factories to support these large projects. The Club thinks the company could see a rise in demand in its construction segment while these facilities are being built. Caterpillar also provides equipment for mining precious metals — and lithium, cobalt and nickel are essential to the production of the batteries that power electric vehicles. And Caterpillar stock should be boosted long term by the federal government’s $1 trillion infrastructure spending law. “I’m still steadfast on the idea that Caterpillar’s a terrific story for next year,” Jim Cramer said recently. HON YTD mountain Honeywell (HON) year-to-date performance During Honeywell’s third-quarter earnings call last month, management called the ongoing energy transition a tailwind for the company when discussing the firm’s forward guidance into 2024. The manufacturing and tech company has four business segments, including aerospace technologies, industrial automation, building automation, and energy and sustainability solutions. Honeywell offers a wide array of products, ranging from avionic systems to building control systems, and special materials found in electronics, to name a few. In terms of the energy transition, the company’s aerospace business could see a boost from its development of sustainable aviation fuels. The company also works with ExxonMobil , which plans to deploy Honeywell’s technologies to enable the capture and storage of carbon dioxide. And Honeywell is also creating new battery technology that can both store and discharge electricity for a longer period of time than commonly-used lithium-ion batteries. CEO Vimal Kapur last month said the industrials giant is “beginning to feel the urgency behind [the] energy transition.” Management has called the shift to renewables one of three mega trends the firm wants to realign its business segments around. The other two themes are automation and the future of aviation. “Honeywell is in a unique position to both help the world meet today’s growing energy needs, while also enabling the energy transition,” Kapur said. (Jim Cramer’s Charitable Trust is long LIN, CAT, HON. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. 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Attendees wear protective face masks near a Linde AG on a banner outside the Jaffestrasse Corona Treatment Center at the Berlin Messe exhibition space in Berlin, Germany, on Friday, Aug. 14, 2020. Photographer: Krisztian Bocsi/Bloomberg via Getty Images
Krisztian Bocsi | Bloomberg | Getty Images
As the clean-energy transition accelerates in the U.S. on the back of an influx of federal spending, we’re increasingly bullish on big industrial companies that view the shift as an opportunity for growth.
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