Green hydrogen is arguably one of the cleanest ways to generate energy, and the current push toward net zero means hydrogen stocks have become a hot commodity.
Investing in energy is a simple decision no matter the economic climate. We’ll always need to keep the lights on. How we’ll do that is where opportunity comes a-knocking.
As it stands, hydrogen currently makes up about 0.1% of the global energy mix. By 2050, that will need to jump to 10% if we’re to hit net zero. As with most energy stocks, barriers to entry in this field are relatively high, so picking companies with boots already on the ground is a good way to build a position in the industry.
For the more conservative among us, choosing a well-diversified stock might be the best option. These companies operate within the industrial gas industry and have plenty of experience with hydrogen. Their green hydrogen business isn’t driving the car, but it’s a future growth avenue that management is actively investing in.
These companies won’t deliver the same outside returns as the market grows, but they also tend to be much less volatile.
|BLDP||Ballard Power System||$4.99|
Air Products (NYSE:APD) probably isn’t first to spring to mind for hydrogen stocks, but that will probably change soon. The group has a huge international industrial gas business supplying a wide range of industries from healthcare to electronics.
But it also means it’s far from being a pure play in green hydrogen. That could change in the years ahead. The group is funnelling excess cash into green and low-carbon hydrogen projects that should put it on the map.
Given its extensive experience in the industrial gas business, chances are good it will be successful in bringing these projects online. Reliable cashflows mean investment in this part of the business isn’t taking away from its existing growth engine.
Stability comes at a price, though, APD stock isn’t cheap. The group’s valuation has been on the rise, which increases the possibility of volatility. Investors are expecting big things from APD and although the company looks able to deliver, there are no guarantees.
Ballard Power Systems
Ballard Power Systems (NASDAQ:BLDP)is a much more focused pick among hydrogen stocks. The company makes fuel cell products for a range of industries including transportation and energy. Ballard’s been growing its presence in Europe substantially, with contracts in the region making up well over half of its total order backlog.
This is a positive given the focus on energy independence and clean energy has been gaining momentum quickly compared to the pace in the US and elsewhere.
Ballard is a volatile pick and in a somewhat precarious position. The fourth quarter disappointed the market after revenue fell more than expected. It caused a flurry of downgrades and the share price tanked. This offers an interesting entry point, though.
While Ballard is no doubt struggling, it’s well-positioned to run away with an enormous slice of the European market. Partners like Audi, Daimler and Siemens mean the group’s working with a lot of resource, and that should stand it in good stead as the industry develops.
Still, there’s plenty of risk attached to Ballard stock, especially since the group hasn’t turned a profit consistently.
Plug Power (PLUG)
Plug Power (NASDAQ:PLUG)is another pure play within hydrogen stocks— and like Ballard, it is a wildcard. The company has been plugging along toward full vertical integration across the whole green hydrogen value chain.
It’s built out expertise in everything from producing green hydrogen to distributing usable, liquefied green hydrogen. They did much of the building via acquisitions, and we have yet to fully see the fruits of these efforts.
Management says profits are around the corner and that breakeven could be achieved as soon as this year, but investors are understandably dubious. There has been no sign of black ink on the bottom line yet and no guidance at the latest earnings report.
Still, with major customers like Amazon on the books, Plug is in a good place to benefit from growing green hydrogen demand. Plus investors have started losing faith in the group’s growth prospects, so an upside surprise could be in store if Plug can deliver on its promises.
On the date of publication, Marie Brodbeck did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.