NextEra Energy (NYSE:NEE) is really a mini conglomerate consisting of three businesses. Its utilities provide electricity to companies and consumers, its resources segment develops and sells renewable energy systems, and its natural gas pipeline transports (you probably guessed it) natural gas.
These businesses leave NextEra and NEE stock very well-positioned to benefit from multiple, strong trends.
These trends include the rapid growth of renewable energy and increased demand for electricity, over the longer term.
Those, along with a couple of other reasons that long-term investors should buy NEE stock, are detailed below.
Strong Demand for Renewable Energy
Solar and wind are becoming cheaper and cheaper. In some parts of the United States, they are now cheaper than any other means of generating electricity — even without tax breaks.
But the government is still set to provide tax breaks for years to come. Further, many states are mandating that an increasingly high percentage of the electricity used within their borders come from renewable sources.
Meanwhile, one of the main downsides of solar energy — its inability to generate electricity when the sun is shining — is becoming more and more irrelevant. That’s because batteries have become cheaper, causing demand for those that can be paired with solar energy systems to explode.
In 2018, demand for batteries soared an incredible 147% year-over-year. Research firm Wood Mackenzie predicted that demand would grow 13 times over between 2018 and 2024. NextEra is one of America’s leaders in this market.
In its last reported quarter, its backlog included 340 megawatts of battery storage, and it reported that more than 50% of the solar megawatts it added last year included batteries.
Moreover, the company’s backlog of renewable energy projects included an impressive 500 megawatts of wind and 700 megawatts of solar. In 2019, the backlog of its renewable energy project business soared by a very impressive 5,800 megawatts.
And what’s more, the unit is extremely profitable. Its earnings per share jumped 11% last year to $3.49 from $3.11 in 2018.
The Electric Revolution
As I’ve noted previously, the proliferation of electric cars and data centers is likely to meaningfully increase demand for electricity. In August 2018, Forbes columnist Jude Clemente predicted that U.S. electricity use would rise, driven by a push to “electrify everything.”
In an article published in January 2019, Jude Clemente wrote that the ” immense, low-cost gas resource base encourages rapid growth across the production, transport, and trading, and consumption chain.”
What does this mean? Increased demand for electricity is likely to boost the results of NextEra’s electric utilities
Meanwhile, stronger demand for electricity, along with recent price drops in natural gas, will likely result in increased demand for the fuel. I expect demand for natural gas and renewable energy to climb together, replacing coal and nuclear power.
Clemente also expects natural gas demand to increase. In January 2019, he contended that natural gas would generate a much higher percentage of American electricity going forward. NextEra’s acquisition of natural gas pipeline owner Meade Energy should help it benefit from this increased demand.
Everyone Likes NEE Stock
Given the huge amount of electricity that NextEra generates from solar energy, environmental, social, and governance (ESG) investors should obviously like the stock.
Moreover, the decision by JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) to buy $2.5 billion of the company’s stock shows that large Wall Street banks are also upbeat on the shares.
NEE has a lot of reasons to thank its popularity. Despite its recent pullback — along with the rest of the market — NextEra has risen 12% in the last year. Given all of its positive attributes, I expect the stock to resume its upward trajectory soon and outperform the market in 2020.
As of this writing, Larry Ramer did not own shares of any of the aforementioned companies. Larry Ramer has conducted research and written articles on U.S. stocks for 13 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.