The best-laid plans of mice and men often go awry, and that's certainly the case with the clean-energy transition. That's not to say it's not happening, but it's taking place slower than many had expected. The future of energy provision still lies in renewable energy. Still, it's becoming increasingly clear that reliable and plentiful energy sources like natural gas and nuclear power also have a significant role to play, and that means investors should consider stocks like GE Vernova(NYSE: GEV), Baker Hughes(NASDAQ: BKR), and Cameco(NYSE: CCJ) for their portfolio. Here's why.
GE Vernova for gas and renewables
A recent McKinsey report states that "the energy transition has been slower than expected" despite progress on renewable-energy sources. Furthermore, based on current trends, McKinsey sees fossil fuels contributing 52% of global energy demand in 2050 compared to 39% under its "sustainable transformation" scenario. The tardiness in the transition comes down to "rising costs, complexity, and increased technology challenges."
The difference in perspective may seem slight, but it makes a massive difference to these companies. For example, under McKinsey's "slow evolution" scenario, natural gas energy demand is growing at a compound annual growth rate (CAGR) of 1% from 2023 to 2050 compared to a 1% decline in CAGR in the "sustainable transformation."
That's great news for a company like GE Vernova. This year, the company was spun off from the former General Electric and combined its power (primarily gas turbines and services), renewable energy (onshore and offshore wind), and electrification (grid solutions, power conversion, software) businesses.
Wind power is slowly working its way to profitability as it executes contracts secured in less inflationary times, and the power business is already seeing the benefit of the change in perspective over the energy transition. For example, its orders were up 27% organically in the first half of the year.
The improvement hasn't gone unnoticed by the market, and the stock has doubled since its listing. With natural gas likely to play a vital role in supporting renewable energy (not least as renewables tend to provide intermittent power), GE Vernova's long-term growth prospects look a lot healthier now. Earnings from its gas turbine equipment/services business will support the company, while wind power works toward profitability.
Image source: Getty Images.
Baker Hughes clean energy and gas technology
By coincidence, another former GE and gas technology-related business will benefit from the new reality. I'm referring to Baker Hughes, an oilfield services/equipment (OFSE) and industrial & energy technology (IET) company.
Its OFSE business looks set for steady growth as the price of oil remains supportive of investment. However, the company's IET business is the fascinating part of its growth strategy. The business encompasses natural gas/LNG equipment, gas-technology services, industrial gas technology and solutions, and climate technology (primarily new energy technology such as carbon capture, hydrogen, and clean power).
Its new energy orders are booming in line with the clean-energy revolution. For example, its orders to the end of the first half were $684 million compared to $750 million booked in 2023, and management sees full-year orders trending toward the high end of its $800 million to $1 billion range.
In addition, the improving environment for gas will boost demand for its gas compression and power-technology equipment and services across the industry. CEO Lorenzo Simonelli believes natural gas is critical to helping meet growing power demand and, not least, demand from data centers in connection with cryptocurrency and AI applications. As such, he expects "natural gas demand to increase by almost 20% between now and 2040."
Don't forget nuclear power
Alongside natural gas, nuclear power has a big advantage over renewable energy as it is far less intermittent. In addition, in the game of "power source trumps," nuclear trumps fossil fuels like gas and coal, as it doesn't come with carbon emissions.
Image source: Getty Images.
These properties are why Microsoft signed a 20-year power-purchase agreement with Constellation Energy, a deal that will result in restarting the Three Mile Island nuclear plant. Microsoft needs to secure a reliable source of long-term energy to power its data centers for the reasons touched on above.
It's a deal that helped send Vistra stock flying in anticipation of its nuclear business signing similar deals, and it's also the reason why investors are turning to uranium and nuclear fuel-services company Cameco. Providing products, technologies, and services across the fuel cycle, Cameco is ideally placed to benefit from increased investment in nuclear power plants. Given that Microsoft is believed to have paid a significant premium for power as part of the deal, the indication is that the market and cloud-services providers, in particular, are willing to support investment in nuclear power. That could be a game changer for Cameco's long-term demand.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Constellation Energy and Microsoft. The Motley Fool recommends Cameco and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
