This year, renewable energy stocks are being dragged lower by a variety of factors, including erosion in growth stocks and rising inflation  the latter of which is leading to higher input costs.

However, some experts argue weakness among renewable energy equities is too much, too rapidly and that market participants currently punishing this segment are short-sighted in their approach. Assuming that outlook proves accurate, exchange traded funds, such as the SPDR Kensho Clean Power ETF (CNRG), stand to benefit.

“In many cases, we think the market has overly discounted the stocks for these near-term factors, while several catalysts are poised to get the industry back onto its strong long-term profitable growth path,” said Morgan Stanley analysts in a recent note to clients.

AES Corp., Plug Power Inc., and Sunrun Inc. are among the individual clean energy names Morgan Stanley is constructive on. All three are CNRG member firms and the trio combines for about 5.5% of the ETF’s portfolio.

“We are increasingly of the view that clean energy can, in the long term, be disruptive to traditional energy suppliers, especially utilities with high (and rising) customer bills, above-average exposure to physical risks from climate change, and challenges in ensuring adequate power supply to its customers,” added Morgan Stanley.

Utility giant NextEra Energy (NYSE: NEE), which is also a CNRG member firm, is among the companies with renewable energy exposure Morgan Stanley is bullish on. While NextEra’s roots are as a traditional utility, the company is rapidly becoming a force in the delivery of solar power. That levers the company to the White House’s recent decision to halt some tariffs on solar products produced in select Southeast Asian nations.

President Biden’s invocation of the Defense Production Act could also be a boon for some hydrogen stocks, some of which reside in CNRG.

“Bloom Energy and Plug Power, in particular, would benefit from a $3 production tax credit per kilogram for hydrogen production with near-zero emissions,” according to Morgan Stanley. “Because the cost of producing and delivering green hydrogen could fall to less than $1.50/kg, making the fuel competitive with more carbon-intense types of hydrogen,” noted S&P Global Market Intelligence.

CNRG, which tracks the S&P Kensho Clean Power Index, holds 45 stocks. The fund’s top 10 holdings combine for approximately 36% of the roster.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.