5 Top Stocks to Invest in the Energy Grid

Bank of America (BAC) predicts a perfect storm brewing for the electrical grid, with manufacturing, data centers, artificial intelligence (AI), and the electrification drive converging to amplify demand. This surge is anticipated to put immense pressure on “an already-tight electrical grid,” according to the brokerage firm.

According to the annual electricity report from the International Energy Agency (IEA), global data center electricity usage is set to double by 2026. Data centers consumed 460TWh in 2022, which could exceed a staggering 1,000TWh by 2026. These findings underscore a substantial challenge looming over the global energy infrastructure.

Keeping these factors in mind, here are five promising stocks that BofA analysts believe could emerge as winners in this evolving energy landscape.

Stock #1: Caterpillar 

Established in 1925 and commanding a market cap of $177.4 billion, Texas-based Caterpillar Inc. (CAT) is the world's leading manufacturer of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. 

Shares of Caterpillar have rallied 66.6% over the past 52 weeks, surpassing the S&P 500 Index’s ($SPX) corresponding 26.6% gain. 

On May 20, Caterpillar paid its shareholders a quarterly dividend of $1.30 per share. Its annualized dividend of $5.20 translates to a 1.43% dividend yield. With a rich history of 30 years of consecutive dividend growth, the company has earned its spot in the prestigious S&P 500 Dividend Aristocrats Index.

BofA suggests Caterpillar is strategically positioned to capitalize on the surging demand for electricity, thanks to its robust backup generator supply capable of fulfilling the power requirements of data centers. 

Caterpillar stock has a consensus "Moderate Buy" rating. Out of 20 analysts covering the stock, six recommend a "Strong Buy," one gives a "Moderate Buy," 11 suggest “Hold,” and the remaining two advise a "Strong Sell" rating. While the stock is already trading above its mean price target of $343.22, its Street-high target of $440 suggests a 22.5% potential upside from the current price levels.

Stock #2: Energy Transfer 

Headquartered in Dallas, Energy Transfer LP (ET) boasts one of the largest and most diversified portfolios of energy assets in the U.S., with over 125,000 miles of pipeline and associated energy infrastructure. Valued at a market cap of $54.4 billion, the company’s strategic network spans 44 states and includes assets in all major U.S. production basins.

ET stock has climbed 25.4% over the past 52 weeks and 16% on a YTD basis. 

The company offers an annualized dividend of $1.27 per share, translating into a highly attractive dividend yield of 7.78%.

Last year, Energy Transfer made a strategic move by acquiring Lotus Midstream's Centurion Pipeline, significantly enhancing its footprint in the bustling Permian Basin. With BofA indicating that the company's extensive pipeline network stretching from the Permian region to data centers could be a game-changer, Energy Transfer's future looks promising.

Plus, analysts have a consensus rating of “Strong Buy” on Energy Transfer stock, with a mean target price of $18.61, which indicates an upside potential of about 16.2% from current levels. Out of 15 analysts covering the stock, 13 advise a “Strong Buy” rating, one gives a “Moderate Buy,” and the remaining one suggests a “Hold” rating.

Stock #3: GE Vernova 

Cambridge-based GE Vernova Inc. (GEV) is a leading energy company, encompassing power, wind, and electrification segments. With a robust infrastructure of approximately 54,000 wind turbines and 7,000 gas turbines, GE Vernova’s technology generates about 30% of the world’s electricity, significantly contributing to the global energy transition. The company’s market cap currently stands at $44.1 billion.

Shares of GE Vernova have surged 20% over the past month, outshining the SPX's 6.8% returns. 

BofA analysts predict that GE Vernova will capitalize on the surging demand for grid and power equipment. The company’s innovative technologies and expansive portfolio of turbines are perfectly poised to meet the escalating need for reliable and efficient grid infrastructure.

Overall, analysts have deemed GE Vernova stock a “Moderate Buy,” with a mean target price of $165.78, which indicates an upside potential of 1.8% from current levels. Out of 10 analysts covering the stock, five have a “Strong Buy” rating, two suggest a “Moderate Buy” rating, two give a “Hold,” and the remaining one advises a “Strong Sell” rating. 

Stock #4: Vertiv Holdings 

With a market cap of $37.2 billion, Ohio-based Vertiv Holdings Co (VRT) tackles the most critical challenges facing modern data centers, communication networks, and commercial and industrial facilities. Vertiv's extensive portfolio encompasses power, cooling, and IT infrastructure solutions and services, spanning from the cloud to the edge of the network.

Shares of Vertiv have rallied nearly 540% over the past 52 weeks and 107.3% on a YTD basis. 

The company offers an annualized dividend of $0.10 per share, resulting in a dividend yield of 0.1%.

BofA highlights Vertiv as a vital force in AI development, thanks to its advanced thermal products. As AI systems become more complex, the demand for efficient cooling solutions intensifies, making Vertiv's innovative liquid cooling offerings crucial for ensuring the seamless performance of AI infrastructure.

Vertiv stock has a consensus "Strong Buy" rating overall. Out of 11 analysts covering Vertiv, 10 recommend a "Strong Buy," and only one suggests a "Hold" rating. 

The stock is trading slightly above its mean price target of $97.40. However, the Street-high target of $115 indicates a 16% potential upside from the current price levels.

Stock #5: Aspen Technology

Headquartered in Massachusetts, Aspen Technology, Inc. (AZPN) provides industrial software that focuses on helping customers in asset-intensive industries worldwide. Valued at $14 billion by market cap, Aspen’s solutions encompass performance engineering, modeling and design, supply chain management, predictive and prescriptive maintenance, digital grid management, and industrial data management.

Shares of Aspen have gained 30.5% over the past 52 weeks, surpassing the SPX’s 26.6% return over the same time frame.

BofA analysts believe that Aspen is well-positioned to capitalize on industry tailwinds, supported by its foothold in grid software solutions.

Analysts have a consensus "Moderate Buy" rating on Aspen stock. Out of seven analysts covering the stock, four recommend a "Strong Buy" and the remaining three suggest a "Hold." 

While the stock is trading above its mean price target of $208.60, the Street-high target of $235 suggests a 6% potential upside from the current price levels.