One month ago, would you have picked FuelCell Energy (NASDAQ:FCEL) to be one of the hottest stocks on the market? I can’t say that I would have. FCEL stock has slumped precipitously over the past five years. A year ago, it hit penny stock status! 2020? FCEL has largely bounced around between the $2 and $3 level for most of the year. By mid-November, someone lit a fuse under this hydrogen fuel cell stock.
In a matter of two weeks, FCEL stock climbed by 298%. It’s given some of that back since peaking on Nov. 30. Currently around $8, shares are still up an impressive 219% so far in 2020.
The question is, will the catalyst that sparked such explosive growth continue to push FuelCell shares sky high? Or was this a market overreaction that will correct in short order?
Big Announcements Fuel a November Run for FCEL Stock
To understand why shares in FuelCell suddenly took off in November, look no further than headlines about action to fight climate change.
In November, Joe Biden was declared the winner of the U.S. presidential election. Biden campaigned on a plan to ensure the U.S. is carbon neutral by 2050, with a 100% clean energy economy. The federal government is expected to spend $1.7 trillion on clean energy initiatives and infrastructure over the next 10 years.
Also in November, the International Energy Agency (IEA) released a report forecasting renewable energy deployment is set to surge by 50% over the next five years. The IEA report predicts the cost of hydrogen could drop by 30% over the next decade.
Then, United Nations Secretary-General Antonio Guterre called for a global halt to investment in coal burning power plants. The UN is pushing toward a carbon neutral future with a 2050 target.
Clean energy stocks in general saw gains from this series of announcements, but FCEL really shot up.
The Bull Case for Hydrogen Power
America and the world are finally waking up to the reality of climate change, and pledging to do something about it. In particular, Joe Biden’s plan to invest heavily in clean energy infrastructure and make the U.S. carbon neutral bodes well for green energy companies.
Solar and wind power generation and electric cars have been in the public eye for years. However, the big winner in this era may be another green energy source that has yet to have a mainstream impact: hydrogen.
The problem with hydrogen has always been cost, an issue that has dogged FuelCell energy. However, technology has continually improved, while the economics around hydrogen are becoming much more favorable. It’s not just the 30% price drop that the IEA is predicting; many countries are implementing carbon taxes on fossil fuels.
Stefan J. Reichelstein is a professor emeritus at Stanford Graduate School of Business. In a recent interview, he summed up the sentiment that is lifting FCEL stock: “the time for hydrogen has finally come.”
Bottom Line on FCEL Stock
FuelCell Energy has a bright future, but that wasn’t a given, even a few years ago. The company’s stock performance has sorely disappointed long-term investors who have seen their shares plummet in value over the past five years. However, the issue was largely a question of timing. Demand simply wasn’t there. Hydrogen was too expensive.
Now, with a scramble to reduce carbon emissions and a push to rapidly move away from fossil fuels, hydrogen looks increasingly attractive. Because of this shift, I feel the time is finally right for FuelCell Energy.
That being said, the rapid spike in FCEL stock feels like a reaction to the flurry of announcements, agreements, and programs aimed at the green energy sector. An over-reaction. While the stock is positioned for long-term growth after years of disappointment, it is going to have to come down to reality a bit first.
Analysts following FCEL stock are in a wait-and-see mood at the moment. Those tracked by CNN Money have FCEL as a consensus hold with a $5 price target.
In addition, FuelCell’s impressive November run was cut short by the company’s own actions which had poor optics. As pointed out by InvestorPlace contributor Thomas Neil, the decision to release secondary shares raised concerns about dilution as well as insider trading.
Based on the current pro-hydrogen climate and FuelCell Energy’s years of building IP and proven solutions like its SureSource power plants, FCEL is a stock that is primed for growth. It just needs to get past the current speculative bump before it’s worth considering as part of a clean energy portfolio.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
