There’s a strong long-term case for hydrogen stocks at the moment. Alternative fuels are starting to see higher adoption and the runway for growth seems long.
After all, the world still essentially runs on oil. Yet many believe it shouldn’t. The environmental impact of producing, transporting, and burning oil and its derivatives is significant. Consumers, politicians, and even businesses are looking to find new, cleaner, energy sources — and hydrogen shows real promise.
It was hydrogen-based technology, after all, that drove the enormous optimism fueling electric semitruck manufacturer Nikola (NASDAQ:NKLA) before the stock collapsed amid allegations of questionable behavior.
There are risks to the sector even for those companies going about their business the right way. Hydrogen technology isn’t new. Other alternative fuels have their own proponents. And it will take decades, at least, for the world to completely move away from oil.
Still, there’s real promise here, and so it’s no surprise that hydrogen stocks have done well so far in 2020, along with many clean energy names. In fact, the iShares Global Clean Energy ETF (NASDAQ:ICLN) is up 80% YTD.
For investors who believe that trend will continue — and who are willing to pay up for the sector’s potential — here are four hydrogen stocks worth considering:
- Plug Power (NASDAQ:PLUG)
- Bloom Energy (NYSE:BE)
- FuelCell Energy (NASDAQ:FCEL)
- Air Products & Chemicals (NYSE:APD)
4 Hydrogen Stocks: Plug Power
Plug Power stock has been one of the best hydrogen stocks of 2020. In fact, with a 419% year-to-date gain, PLUG stock has been one of the best names of 2020, period.
And as far as hydrogen stocks go, PLUG has one of the better stories. Plug Power already manufactures forklifts for blue-chip companies, including Amazon.com (NASDAQ:AMZN), Walmart (NYSE:WMT), and Procter & Gamble (NYSE:PG). Materials handling is a perfect fit for hydrogen fuel cells, and a solid base for future growth.
Recent acquisitions move the company into hydrogen production and distribution. The company is taking steps toward fuel cell-powered on-road vehicles and even aircraft as well. If hydrogen proves to be a big business, Plug Power should be able to capitalize.
There are risks. The company has a long and dismal history: the company went public in 1999, and hasn’t yet returned a net profit in a single quarter. The rally in 2020 follows a 155% gain in 2019. As a result, valuation does look a bit stretched, with PLUG stock trading at almost 25x revenue despite still-low gross margins.
Still, a $5.68 billion market capitalization doesn’t incorporate all the potential upside if this time is truly different for the company. As long as the recent improvement in execution holds and the hydrogen market cooperates, PLUG stock can keep rallying.
[CORRECTION: A previous version of this story incorrectly stated Plug Power’s market capitalization. It has since been corrected.]
Bloom Energy, too, focuses on hydrogen fuel cells, but for on-site power generation. A new partnership with a unit of Samsung adds marine power to the portfolio.
Though the business models are different, BE and PLUG share some similarities. Bloom, too, remains unprofitable, and likely won’t reach the black until 2022 at the earliest. BE stock, too, has been a 2020 winner, gaining 145%. Valuation isn’t quite as high, but at least for now Bloom’s opportunity seems smaller than that of Plug Power, and its customer base is less impressive.
Obviously, that could change. If Bloom Energy’s technology proves viable at scale, the opportunity would be enormous. So would the profits. Risks are real, but BE stock has perhaps the highest potential rewards of any hydrogen stock out there.
Even by the standards of a high-risk, high-reward sector, FCEL stock is the “go big or go home” play.
The bull case is that FuelCell Energy can follow the template laid out by Plug Power. PLUG headed into 2019 as a serial disappointer whose stock had lost more than 99% of its value since its initial public offering. FCEL has lost 98.9% of its value over an even longer timeframe: the company went public in 1992. And the company remains a serial disappointer: it’s never found consistent demand for its own power generation offering, with trailing 12-month revenue of just $65 million.
That may change. Fuel Cell raised $177 million between June and October of this year, providing capital for future growth. An $8 million contract win with the U.S. Department of Energy spiked FCEL stock earlier this month. Demand should continue to grow going forward.
Of course, the bear case is that FuelCell Energy simply isn’t the next Plug Power. Rather, it’s the same FuelCell Energy. That company has for three decades failed to fulfill its promise or drive sustainable investor returns. If “this time is different” are the four most dangerous words in investing, FCEL stock is dangerous indeed.
Air Products & Chemicals
The safer, if less exciting way, to play hydrogen might be to go to the source. Air Products & Chemicals manufactures hydrogen, and is ramping up its efforts. A $5 billion plant in Saudi Arabia is the most recent step.
APD stock isn’t just a hydrogen play, either. It produces a variety of specialty gases as well as associated equipment. It’s been a wonderful business for shareholders: APD stock has returned over 2,000% over the past 25 years, over 13% annualized. Those returns crush those of the S&P 500 index.
To be sure, for hydrogen bulls, there are more focused plays. And APD, at 30x forward earnings, isn’t cheap. But long-term investors looking for a lower-risk play on hydrogen don’t need to look any further.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. On the date of publication, Vince did not have (either directly or indirectly) any positions in the securities mentioned in this article.