A prominent investor says he sees long-term opportunities for certain renewable energy stocks in Canada, despite headwinds facing capital projects.

“In the end, for longer-term growth, it's hard to argue that renewables is not where you want to be,” John Zechner, chairman and founder of J. Zechner Associates, said in an interview with BNN Bloomberg on Thursday. 

WHAT HAS HAPPENED WITH RENEWABLE STOCKS?

Renewable stocks rose during the COVID-19 pandemic, Zechner explained, as companies looked to reduce their carbon footprint.

“Money plowed into the sector” amid a lower interest rate environment, he noted

As share prices rose, Zechner said he did not see a viable investment opportunity due to extended valuations.

But this year is “starting to look different,” he said, because the renewables sector has been weighed down by capital projects that need to be funded mainly through debt that is now more expensive – and that presents an attractive opportunity for investors, according to Zechner.

“The valuation difference, I think it will stay for the simple reason that a lot of major international funds have pulled out of fossil fuels (and) carbon-based fuels altogether,” he said.

“You're going to have a discount in this group going forward because you have fewer buyers.”

ZECHNER’S TOP RENEWABLE PICKS

“The names that stick out to me are like Northland Power in Canada, Boralex, and Brookfield Renewable Partners would be the three key plays,” Zechner said.

Stock prices for those companies have come down significantly, which presents an upside opportunity, according to Zechner.

He said he hasn’t taken a major position in those companies yet, but he is looking at the opportunity and has started to “pick away” at a few companies he has identified as top choices. 

“Once all these capital projects are built and they start to spin out cash and you generate free cash to pay down the debt, I think you'll get a higher valuation multiple as well because they become like infrastructure projects effectively,” he said.

Zechner, nor his family or fund, own any of the securities mentioned above.