Decarbonization and digitalization represent multi-trillion-dollar investment opportunities over the coming decades. The U.S. needs to invest an estimated $4 trillion to decarbonize its economy by 2050, while the world needs to spend $1 trillion on data infrastructure in the coming decade to support digitalization. Those megatrends could power explosive growth for companies focused on them.
NextEra Energy (NEE +1.15%) and Brookfield Infrastructure (BIPC +0.00%)(BIP 0.32%) are leaders in those fields. Despite that, their shares currently trade more than 30% below their recent peaks because of concerns that rising interest rates could stunt their growth. However, with that headwind expected to fade this year as the Federal Reserve lowers rates, it could lift the weight holding down their stocks. That near-term catalyst, combined with their focus on long-term megatrends, positions investors to potentially earn explosive total returns in the coming years. That makes them stand out as some of the top stocks to buy this month.
Plugged into a powerful megatrend
NYSE: NEE
Key Data Points
NextEra Energy was an early adopter of renewable energy and has built a leading wind and solar energy platform. The company has leveraged its expertise to invest in adjacent sectors to add more power to its growth engine. It's an emerging leader in operating battery storage to complement its renewable energy assets. NextEra is also developing electricity transmission lines to transmit renewable energy to the grid. In addition, it's starting to invest in green hydrogen, an emissions-free fuel produced with renewable energy.
The company's early foray into renewables has helped power double-digit adjusted earnings and dividends per share growth over the past decade. That has given it the power to produce strong total returns (12.2% annualized). NextEra expects to grow its adjusted earnings by more than 9% per share off of 2021's base through 2026 while increasing its dividend by around 10% annually through that timeframe. It could continue growing rapidly post-2026, given the expected acceleration of renewable energy demand to power data centers, electric vehicles, and green hydrogen production.
Despite that robust growth outlook, NextEra Energy currently trades at its lowest valuation in years. That's due to the more than 30% slump in its stock price as investors sold off shares of higher-yielding stocks as interest rates rose. Its forward P/E ratio of roughly 17 is well below the 25-plus that it fetched in 2022. It's also a lot cheaper than the broader market. The S&P 500's forward P/E is nearly 23, while the Nasdaq 100's is over 30.
With interest rates set to decline, NextEra could regain a higher valuation multiple. Add that upside to the explosive growth of renewable energy, and it could produce powerful total returns from here.
A dirt cheap way to play the digitalization megatrend
NYSE: BIP
Key Data Points
Brookfield Infrastructure trades at an even cheaper price. The global infrastructure operator sells for a little more than 12 times its funds from operations (FFO) per share following a more than 30% slump in its share price from the peak. That's dirt cheap for a company that grew its FFO per share by 10% last year, a rate it expects to sustain in the future.
One factor fueling Brookfield's bullish growth outlook is its increasing focus on the digitalization megatrend. The company has built a leading data infrastructure platform that features communication towers, fiber optic networks, data centers, and semiconductor fabrication.
Brookfield is investing heavily in data centers, which it sees as a "once-in-a-generation" investment opportunity powered by catalysts like cloud computing and AI. Last year, the company significantly expanded its global platform by investing in three data center operators. Brookfield is also investing in several data center developments, which will more than triple its capacity by 2026.
The company's increasing focus on digitalization could power robust total returns. Brookfield has delivered a nearly 13% annualized total return over the last decade and could produce even better returns in the future, given its cheap valuation and strong growth drivers.
Explosive total return potential
NextEra Energy and Brookfield Infrastructure have delivered excellent total returns over the past decade by focusing on investing in strong global growth trends. Their thematic investment approach should continue producing results as the decarbonization and digitalization megatrends gain steam over the coming years. Those drivers could power robust growth and explosive total returns, especially given their currently cheap valuations. That makes NextEra and Brookfield stand out as great stocks to buy this month.
