Fed pivot, lower rates could be catalyst for ‘green’ stocks.

Investing.com – Clean energy burned a lot of investors when easy money choked, according to Citi Research, but in the short term, a Fed pivot and lower rates could still be a catalyst for the broader green theme.

“We are not yet big buyers of ‘Green’ per se,” analysts at Citi Research said in an Aug. 30 note, “but we do see opportunities within the broader theme where profitable businesses can benefit from secular investment trends in course”.

Beneath the surface, corporate focus on green initiatives is becoming less novel and more integrated into normal business practices, thus expanding the opportunity.

A Fed pivot and subsequently lower rates should be a tailwind for relative performance as well as possible policy implications.

Recent results suggest a Democratic president might support more “greenness,” but there are nuances, the bank added. Democratic policies directly support the implementation of clean technology, but it is unlikely to continue spending the deficit without review. For Republicans, the IRA (Inflation Reduction Act) is unlikely to be repealed, and tax-friendly deregulation/investment policy could make the projects more palatable.

However, policy catalysts and rates alone are unlikely to support green stocks over the medium term, Citi said.

“Therefore, we focus on three key fundamentals: positive cash flow, visible profitability and accelerating sales/EBITDA growth. Clean water, energy efficiency and nuclear power are the most attractive, while electric vehicles and energy storage may be the most challenging.”

Citi added buy-rated names Ecolab (NYSE: ) and IDEX Corporation (NYSE: ) to the Thematic 30 recommended list for clean water exposure, saying they have reasonable default growth configurations and moderate political sensitivity scores.