Recent Euphoria Makes FuelCell Energy Stock Ripe for Profit-Taking

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With hydrogen being the most abundant element in the universe, you ordinarily wouldn’t expect it to be worth too much. From economics 101, the more supply, the less demand, typically. However, hydrogen fuel cells are a different matter, as demonstrated by FuelCell Energy (NASDAQ:FCEL). After enjoying a blisteringly strong November, FCEL stock recharged and is off to an amazing start to 2021.

a picture of a fuel cell
Source: Kaca Skokanova/Shutterstock

Indeed, on a year-to-date basis, shares are up more than 44%. There’s no guarantee that FCEL stock will maintain this incredible momentum. However, with all eyes turning to alternative energy — whether it’s transportation with electric vehicles or renewable infrastructure such as wind and solar — FuelCell and related names are enjoying a rising tide.

That’s most likely the explanation regarding the recent rally in FCEL stock. Just a few days ago, South Korean conglomerate SK Group announced a joint venture with Plug Power (NASDAQ:PLUG) to support hydrogen energy expansion in Asia. SK will invest $1.5 billion into the project.

Though not directly related to the venture, FCEL stock and Bloom Energy (NYSE:BE) shares popped higher on the news. Under the present context, this alone shouldn’t dissuade you from speculating on FuelCell. With President-elect Joe Biden eager to implement his long-term goals of net-zero emissions, along with surprising victories by Democrats in the Georgia runoffs, the incoming administration should have fewer bureaucratic roadblocks.

Naturally, this has been a strong catalyst seemingly for most stocks. Yes, there is an argument to be made that many of Biden’s policies — including the controversial “wealth” tax — may not be conducive for free-market capitalism. However, we’re in a severe economic crisis due to the novel coronavirus pandemic. Therefore, the logic here is that decisive, largely unfettered leadership is what our country needs.

But can this narrative continue to support FuelCell shares’ dramatic bullishness?

Why Profit-Taking on FCEL Stock Isn’t a Bad Idea

On one hand, investors have multiple reasons to support FCEL stock despite it reaching incredible plateaus so quickly. Beyond the Biden boost, society has long been pushing for green solutions. And hydrogen fuel cells may play a pivotal role in these next-generation infrastructures.

Among the compelling businesses under the FuelCell brand is energy storage that can store “excess power produced by intermittent technologies when their output exceeds the needs of the electric grid.” According to the Fuel Cell & Hydrogen Energy Association, this excess power is used in the process of electrolysis which extracts hydrogen. From there, the hydrogen can be used for myriad applications, including stationary fuel cells.

Now, it’s true that battery storage systems are used to store extra energy harvested from renewable sources. However, batteries are vulnerable to storage degradation. In contrast, hydrogen fuel can be stored for long periods of time and at scale (limited only to facility size). This makes FCEL stock incredibly relevant to the renewable energy push.

However, numerous academic resources have noted that hydrogen has a long history of being proposed as an energy alternative. That it hasn’t panned out is evidence that the cost and efficiency problems of the platform so far prevents its commercial viability.

And that may be the biggest distraction for FCEL stock. Mainly, it comes down to timing. On a quarterly year-over-year basis, the last time FuelCell shares enjoyed this kind of momentum was back during the 2000s era tech bubble.

FCEL stock (year-over-year performance)
Click to Enlarge
Source: Chart by Josh Enomoto

Of course, this time could be different. However, triple-digit returns just don’t last indefinitely, not for alternative energy plays, not for anything. That doesn’t mean that I think less of FCEL. It’s just the reality of the market.

As well, if the business were truly viable, you wouldn’t expect such a long, uninterrupted streak of losing money. At some point, investors may come down from their euphoria and look into the financials.

Can Big Government Really Spark a Green New Deal?

According to the Institute for Energy Research (IER), the renewable energy push has an unjustifiably large amount of hype. One of the counterarguments to the green future is that the infrastructure to build out wind and solar energy equipment require raw materials that would make us beholden to China.

In other words, true energy independence is a myth. In terms of dependency, we’ve got to pick our poison: the Middle East or China.

It should be noted that many regard the IER as a front for the fossil fuel industry. I think that’s a fair criticism. But the institute also brings up an unavoidable reality — going green will require big government’s involvement (i.e., the Green New Deal). But is this a realistic proposition?

Bear in mind that academic literature has cast much doubt on the effectiveness of President Franklin Roosevelt’s New Deal. Some evidence suggests that the unprecedented wave of government programs ended up hurting low-to-middle-income households, exactly the people whom these programs were meant to support!

It will not surprise me in the least if the Green New Deal ends up hurting the environment (and the economy) more so than it helps. That’s not casting aspersions on the science of renewable energy but rather big government.

To put it another way, I’m not seeing enough evidence to support FCEL stock at its elevated premium, whether from outside factors or from internal substance. Thus, if you’ve made significant profits from the recent rally, it’s probably time to take some off the table.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.


Article printed from InvestorPlace Media, https://investorplace.com/2021/01/fcel-stock-euphoria-take-some-profits/.

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