The race to “net-zero” is getting a lot of press these days. Governments around the world are making pledges to have a net-zero world by 2050. Aside from the environmental impact, it’s expected to be big business. According to Oxford Economics, an advisory group, this is a $10.3 trillion opportunity. Hydrogen will play a significant role in this transition. So, it’s a good time to cautiously look at some hydrogen stocks to watch.
I say “cautiously” because of a recent study by McKinsey. The report says that the 20 largest economies in the world (I.e., the G20) will need approximately $35 trillion of additional investment from the private sector over the next 10 years to meet net-zero goals by 2050.
Will we look back on 2023 and its clean energy initiatives in hindsight as just another bubble that had to burst? Maybe, but elections have consequences. For now, that’s creating an opportunity in hydrogen-related stocks.
Taking a long position in any of these stocks may be difficult. However, if you’re a nimble trader with a short-term outlook, these three companies can make your list of hydrogen stocks to watch.
Bloom Energy (BE)
Bloom Energy (NYSE:BE) manufactures and installs industrial-scale fuel cells capable of producing an ample supply of uninterrupted power. Beyond that core business, Bloom Energy makes an electrolyzer that uses electricity to separate water into hydrogen and oxygen.
At this time, the demand for standby hydrogen power seems like a more practical solution that makes Bloom Energy an alternative to companies such as Plug Power (NYSE:PLUG), which focuses more on hydrogen in mobility applications.
The economics of hydrogen production remain challenging, and I won’t try to tell you otherwise. However, Bloom Energy has revenue coming in the door based on actual projects, not just subsidies.
A concern about Bloom Energy, and virtually all of the stocks in this sector, is that it is not yet profitable. In fact, it could still be years away from profitability. However, the company has strung together four consecutive quarters in which revenue and earnings (albeit negative earnings) were higher on a year-over-year basis.
Air Products & Chemicals (ADP)
Air Products & Chemicals (NYSE:ADP) is an intriguing choice if you’re looking to hedge your bets in the hydrogen sector. This is a chemicals company, first and foremost. However, part of its business model deals with hydrogen.
In an article I wrote for InvestorPlace in March of this year, I noted the company’s commitment of more than $15 billion by 2027 to deliver large amounts of clean hydrogen. Part of that investment is tied up in a $4 billion green-hydrogen production plant in Texas.
Howver, that’s not the only reason the company is one of the hydrogen stocks to watch. As I mentioned with Bloom Energy, profitability is a challenge for companies in this sector. Air Products & Chemicals is an established company with a dividend that pays out $7 per year annually. The company has also increased the dividend for 42 consecutive years.
Analysts estimate that earnings will increase by 11% in the next year. In fact, 15 out of 24 analysts give ADP stock a Strong Buy rating, and the consensus price target is $329.36 which is 13% higher than the stock price as of August 29, 2023.
Direxion Hydrogen EFT (HJEN)
As I mentioned above, the economics of hydrogen production make this a challenging sector for stock pickers. That’s particularly true if you’re not well-versed in the science behind the hydrogen industry. Another reason is that clean energy is a trending, but new, sector. That means it’s nearly impossible to forecast the long-term winners.
Those are two reasons why the Direxion Hydrogen ETF (NYSEARCA:HJEN) should be one of your hydrogen stocks to watch. It’s a good choice for speculative investors looking to manage their risk in the sector. Plug Power and Bloom Energy have more than 8% weighting in the fund.
However, the fund also gives you broad exposure to the sector, including exposure to international companies that are building out the hydrogen economy in Europe and in other areas of the world. An ETF is an ideal way to get exposure to these stocks, which can be difficult for individual investors to access.
The fund is relatively small with only about $29.5 million of assets under management. However, it only carries a 0.45% expense ratio.
On the date of publication, Chris Markoch did not have (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.
