Are hydrogen stocks the next big thing in the stock market? Hydrogen is the most abundant element in the universe and has the potential to provide powerful and mostly clean energy when used in fuel cells. Hydrogen can be highly efficient and flexible, as it emits only heat and water. While the prospects for hydrogen as an alternative fuel are promising, there are several disadvantages to consider.
Some of the main disadvantages of hydrogen are the following:
- It is expensive and difficult to store
- It is not easy to replace the current infrastructure of transport energy, mainly gasoline and petrol.
- It is highly flammable and to produce it you still need to use fossil fuels.
Hydrogen has many notable advantages though such as:
- It is very abundant.
- It is environmentally friendly and mostly it is fuel-efficient.
- It is renewable.
Several hydrogen stocks can offer exposure to the growing hydrogen economy. A few of my top picks are:
- Bloom Energy (NYSE:BE)
- FuelCell Energy (NASDAQ:FCEL)
- Plug Power (NASDAQ:PLUG)
- Ballard Power Systems (NASDAQ:BLDP)
These four stocks can be added to your portfolio both for diversification purposes and to offer returns based on future growth. Let’s look at the potential of the hydrogen economy and the fundamentals of these stocks you should consider.
Hydrogen Economy Is a Very Promising and Growing Market
An article on Blomberg about the hydrogen economy mentions that “Europe is pinning its green hopes on hydrogen in a plan that sees hundreds of billions euros in investment flowing into the clean technology and fueling a climate-friendly economic recovery.” The European Union plans by 2030 and 2050 to reduce drastically the CO2 emissions and focus on a greener and cleaner environment with a proposed plan worth 750 billion euros ($850 billion).
This hydrogen strategy could be beneficial to these U.S. hydrogen stocks, as several EU counties will probably seek strategic alliances and deals outside the European borders.
But the USA is also one of the largest hydrogen economies. In a report about the maximum support to the hydrogen economy, the USA ranks fifth behind South Korea, Japan, Germany and France. In this respect, the prospects for these four hydrogen stocks look bright. Let’s dip a little into each.
Hydrogen Stocks to Watch: Bloom Energy (BE)
The stock is up by over 100% in 2020. But this stock is highly volatile, with a five-year monthly beta of 3.22. Its EBITDA, which measures operating performance and operating income, improved in 2017 and 2018 but decreased in 2019 and was negative for the past five years. The expected EPS growth over the next five years is 25%.
FuelCell Energy (FCEL)
The stock is only up about 4% in 2020 but has an impressive return of over 500% on a one-year basis. Its a five-year monthly beta of 2.15 is still highly volatile — but in theory is less volatile than Bloom Energy. Τhe five-year trend for sales shows a decline for the past four consecutive years. However it also has a large improvement for the earnings per share.
Plug Power (PLUG)
Plug Power stock has a five-year monthly beta of 1.32, and has a return of around 300% in 2020. The company has a five-year trend for sales that are growing for the past three consecutive years, and I like the improvement also in EBITDA for the same period, although it is negative as the company is unprofitable.
Ballard Power Systems (BLDP)
Ballard Power Systems stock has the greatest financial strength among all hydrogen stocks discussed in this article, with a very low debt-to-equity ratio of just 0.06. The five-year monthly beta is 1.79, so it is the stock with the second-lowest volatility expected. The stock is up 120% in 2020. There is positive growth for sales for the past five years, but EBITDA was only positive in 2017.
What Is Essential to Know about these Hydrogen Stocks
From a fundamental and valuation perspective, these four hydrogen stocks seem to be overvalued and, to my financial analysis, have several red flags. If you believe that growth in stock prices is not always associated with fundamentals — and in reality, they aren’t always connected — and you want to invest early in the growth of the hydrogen economy, these stocks can be further analyzed and be included in a portfolio with a strong emphasis on growth. The fact that almost all of these hydrogen stocks have remarkable returns in 2020, a wild year for the stock markets, shows that there is already demand.
Hydrogen stocks are risky for now, and I suggest if you want to buy some or all of these stocks, you wait for any pullback of their stock prices. But for portfolios with an approach to clean energy, these four stocks are candidates for further financial analysis. After all, even overvalued stocks tend sometimes to become more overvalued before any stock price correction is made.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sources: Yahoo Finance, MarketWatch, Zacks, Gurufocus.