Hydrogen stocks continue to be among the big winners in these first days of Joe Biden’s presidency. FuelCell Energy (NASDAQ:FCEL) is a prime example. Relegated to penny stock status in 2019 and trading below $2 as recently as last October, FCEL stock exploded when Biden won the election.
The promise of the new administration’s Green New Deal has been a catalyst for massive growth among alternative energy stocks. FCEL has been a poster child for this effect. Since Joe Biden declared victory on Nov. 7, 2020, FuelCell stock has gained 655%.
The trajectory has been steady, but there have been significant dips over the past three weeks. FCEL stock has always quickly recovered, but the dips and rapid gains — and their causes — do raise a few red flags. Here’s why.
The Catalyst Is the Green New Deal
Something happened to cause FuelCell Energy shares to rocket in value last November, and that something was the Green New Deal.
President Joe Biden’s radical plan is for the U.S. to become a 100% clean energy economy, with net-zero emissions by 2050, at the latest. The government is committing to investing $1.7 trillion on clean energy measures over the next 10 years. It is hoping to leverage additional funding from states and the private sector to boost that investment to $5 trillion.
One of the obvious beneficiaries of this Green New Deal is the zero emission hydrogen fuel industry. FuelCell Energy has been working for decades to become a world leader in fuel cell power plants. The high cost of hydrogen has held the company back. That is set to change thanks in large part to the Green New Deal. In addition, the plan holds the promise of subsidies and infrastructure investment.
The effect has been like catnip for investors who have piled on hydrogen and alternative energy stocks like FCEL.
Investors Act Like Money Is Coming Now, Panic When It Doesn’t
What tends to be overlooked is that the Green New Deal is a 10-year plan. The benefits to companies like FuelCell Energy aren’t going to happen all at once. They may take years to play out. That’s caused some anxiety that contributes to the frothiness of FCEL stock.
For example, at the end of December, FCEL slid on news the coronavirus relief bill had no money earmarked for hydrogen companies. Last week I wrote about the announcement of $160 million in DOE funding for the hydrogen industry. That news immediately propelled FCEL to a one-day gain of 14%. It slid again on mixed Q4 earnings results late last week, but so far today it’s in double-digit gain territory.
The overall trajectory for FCEL stock remains up, but the volatility makes for a rough ride at times.
Bottom Line on FCEL Stock
FuelCell Energy rates a “B” in Portfolio Grader. The company has a long history (it’s been publicly traded since 1992), and in 2020 it was added to the Russell 3000 Index. I don’t think it’s going anywhere and I think that at long last, the time has come for hydrogen power.
FuelCell Energy shares have seen massive growth over just three months. That growth is clearly tied to expectations of cashing in on the Green New Deal. That may well happen, but in a decade-long program, government cash and incentives are not all going to show up on day one. Any sign of bad news has resulted in FCEL stock sliding. The next press release that mentions spending on alternative energy sends FCEL shooting back up. That creates froth.
Last week J.P. Morgan analyst Paul Coster got cold feet about FCEL, downgrading the stock from “hold” to “sell,” while dropping his price target to $10. That approach largely reflects my own thoughts. Coster’s $10 price target is a 50% or greater drop from FCEL stock’s current levels, but it’s also more than five times what shares were trading for at this time last year.
I think FuelCell Energy has a bright future — and that bright future is without a doubt closer than it appeared just six months ago. I’m not convinced that FCEL stock can maintain its current valuation through 2021, but even if it does, the ups and downs are going to test the nerves of investors.
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.