Well I got that one wrong. By “that one” I’m referring to FuelCell Energy (NASDAQ:FCEL). In December, I confidently predicted that FCEL stock, after retreating from a share price of over $10 was heading lower. But investors had other ideas and as of this writing, the stock is now trading at over $18 per share.
Somebody’s making money on Fuel Cell stock, and it’s certainly not me. However I’m not going to waver on my analysis of FCEL stock. As long as the company continues to sell shares to fund its capital expenditures, it has very little hope of being profitable. The Biden administration is pledging to flood the clean energy sector with cash. However as Chris Lau wrote recently, Fuel Cell is only likely to receive a small fraction of that funding.
The bottom line is that clean energy is a large sector. Hydrogen companies in general, and Fuel Cell in particular, make up a small piece of the pie. Until the promise of hydrogen and the promised funding of what may be its largest customer match, I would be very careful with FCEL stock.
Promises, Promises
Many stocks moved higher in 2020 on what I’ll say was a kiss and a promise. Keeping with that idiom, one reason that investors are bullish on FCEL stock comes from the Green New Deal that is expected to be enacted by the Biden administration.
The Green New Deal is promising $1.7 trillion in spending over the next decade. It’s not too big of a leap to presume that a company that is producing clean energy would be a beneficiary of that largesse. And in fact, on Jan. 15, the Department of Energy (DOE) announced it would provide $160 million to the hydrogen industry.
Cynicism alert … I’m not buying it. Our government has a pathological problem of over promising. After an initial outlay in the spring, it’s been nearly impossible to get $1.7 trillion for pandemic relief. And that’s money that is needed to address a clear and present danger to our economy and a Biden agenda.
But this is different you say? There is “unity” between the executive and legislative branch. That’s a movie I’ve seen as well. I believe it was called “Groundhog’s Day.”
Needless to say, I’m not sure how much of that $1.7 trillion FuelCell or any other company will be receiving.
Selling Shares With No End In Sight
Which brings me back to the fundamental concern about FuelCell stock. Without outside capital, it will continue to have to initiate share offerings to fund its growth. There’s nothing wrong with that, and if the technology rises up to meet the political moment, FCEL stock could move significantly higher. However that seems like a reality that is several years away.
A Better Alternative to FCEL Stock
I’m more bullish on the future of hydrogen than I may have been 18 months ago. It’s a question of the technology rising to meet the moment. But that moment, on a national scale, will still take some time. If your trading style is open to the risk that comes with a stock like FuelCell Energy, have at it.
However, for risk-averse investors, exchange-traded funds (ETFs) are a solid alternative. There are literally dozens of ETFs focused on the renewable energy sector. If you’re looking for funds that specifically include FCEL stock as a part of their holdings, consider the iShares Russell 2000 ETF (NYSEARCA:IWM). The iShares ETF holds over 7 million shares making it the largest holder of FuelCell shares among ETFs.
Other choices include the Invesco DWA Industrial Momentum ETF (NYSEARCA:PRN) that at the time of this writing has over 5% exposure to FCEL stock. And for an ETF pick that’s outside of the renewable energy sector specifically look to the Invesco WilderHill Clean Energy ETF (NYSEARCA:PBW).
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.
