Are hydrogen stocks the next big thing to add to your portfolio? Bold statements like “Hydrogen will be the fuel of the future and step by step it will replace all current fossil fuels,” made in a report on hydrogen by AleaSoft, may have a substantial basis.
In investing there is a difference between facts and opinions. And hydrogen seems to be the next big thing in the global energy sector. But aside from that opinion, what are some facts that support this statement? And why should you now choose some hydrogen stocks to invest in?
A technology report published by IEA (International Energy Agency) in June 2019 highlights some key facts about the future of hydrogen:
- Industrial users the world over need hydrogen. That means hydrogen demand — which has already tripled since 1975 — should increase further.
- More and more countries are instituting policies that “directly support investment in hydrogen technologies.”
- Hydrogen still has a lot of potential as the world transitions to cleaner energy.
Also, some big news about the future of hydrogen is that the European Commission on the July 8, 2020, published a Hydrogen Strategy for a Climate-Neutral Europe. The European Union has a vision for clean energy, and hydrogen is expected to provide up to 24% of the final energy demand by 2050 in Europe.
And even in this coronavirus global crisis, the first stage of the European Union’s three-stage strategy of focusing on hydrogen as a clean energy solution is already underway. This is very important news for hydrogen demand and the support of hydrogen clean energy solutions.
As the prospects for the hydrogen economy seem to be very promising, here are three hydrogen stocks to consider adding to your portfolio:
Hydrogen Stocks: Ballard Power Systems (BLDP)
BLDP stock has a very strong financials and the stock is up 125% in 2020. This Canadian company designs, manufactures and sells various fuel cell products and has a global presence.
Strategic agreements with companies, such as the commercial vehicle parts supplier Mahle to develop transportation business solutions with “zero-emission fuel cell systems” for commercial trucks, are a big deal for Ballard Power Systems. Another important agreement was recently announced with Volkswagen (OTCMKTS:VWAGY), for the AUDI car manufacturer to use fuel cells in commercial trucks and passenger cars.
The company is still unprofitable, but there is revenue growth and book value per share growth over the last years. Valuation does not seem to support the stock price at the moment, but should these business agreements pay off soon, then the profitability has a large margin for improvement.
Hydrogen Stocks: Cummins (CMI)
Cummins is a company with a history of over one century and great expertise in diesel engines. This expertise in manufacturing heavy-duty machines can be a great economic moat and a competitive advantage during the transition to clean energy transportation in the coming years.
The company is active in hydrogen power systems, and its stock has highly qualitative features. For start, Cummins is a profitable company and its stock is up nearly 30% in 2020. It’s a mature and stable company with a forward dividend and yield of $5.40 and 2.3% respectively. There is substantial revenue growth and EPS growth during the past five years with debt levels that are safe.
Zacks estimates that there will be an expected EPS growth for the next three to five years of about 9%. Not bad at all for a large company that can be a leader in the next-generation hydrogen fuel commercial transportation machines.
Plug Power (PLUG)
PLUG stock is the most speculative stock in this hydrogen economy, and the reasons are quite easy to explain. Its fundamentals are not yet inspiring, with impressive revenue growth but no signs of profitability. So this makes me wonder about the logic behind its rally of over 600% in 2020. What is the catalyst behind this stock surge?
To me, there is not a clear catalyst, other than the fact that Plug Power is one of the biggest companies in the hydrogen energy sector. Its stock market capitalization is currently at $9.6 billion. The company also announced better-than-expected third-quarter revenue.
As reported on TheStreet, the company said “We remain focused on building the green hydrogen economy in an electrified world.” The good report was “driven by growth in sales, ongoing cost reductions, and the increased leverage on operating costs.”
Furthermore “Plug Power said it would be working with strategic partners to build five hydrogen plants in the U.S.” Revenue growth is great, but earnings will have to turn positive. And so far this story is not happening. Fundamentals are not supporting the stock price, but it is a company worth monitoring, as it has a business plan for establishing it as a key player in the hydrogen economy.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article.