Hydrogen energy remains a compelling alternative energy source, especially as we remain in an environment with elevated energy costs. There are a few ways to generate energy from hydrogen. For example, one way is less environmentally friendly and leverages the process of developing natural gas, which leaves a hydrogen byproduct that companies can use to make “blue” hydrogen. Green hydrogen solely relies on electrolysis – the splitting of hydrogen atoms from water – to create the potent energy source.
Hydrogen stocks have not proven to be the best investments over the past 12 months, though. Oil prices coming down from record highs, as well as a lack of capital being deployed to hydrogen projects, have affected investors’ outlook on the sector. Rate cuts, however, could provide some of the juice hydrogen stocks have needed. Because producing green hydrogen is a capital-intensive process, lower interest rates on debt could spark a revitalization of the space. With that said, below are three hydrogen stocks to bet on for market-crushing returns.
Air Products (APD)
Air Products (NYSE: APD) is industrial gases business that has been around since the 1940s. The firm has taken a dual approach to its gas operations: on the one hand, developing gases, including oxygen, nitrogen and hydrogen for the operations of various industrial companies, and on the other hand delivering clean hydrogen solutions to companies looking to decrease their carbon footprint. Air Products is also a key provider of liquified natural gas technology, which includes turbo machinery, membrane systems and cryogenic containers. In fiscal year 2023, ending on September 30th, 2023, Air Products generated $12.6 billion in sales, 45% of which came from North America and 23% of which came from EMEA and India.
Air Products’ share price took two separate major downswings after the company revealed dismal demand from Asia in its first-quarter earnings report for fiscal year 2024 and pricing power issues in its second-quarter report. However, APD appears to be on its way to recovery. Shares had tumbled more than 20% for the year in February, but now the stock is only down 7.9% on a year-to-date basis. The industrial gas firm’s relatively low 20.1x forward earnings multiple makes a potential investment even more enticing.
Bloom Energy (BE)
Bloom Energy (NYSE:BE) is a developer of solid-oxide technology that converts natural gas, biogas and hydrogen into electricity. The firm leverages this technology to create fuel cells that other businesses can use for on-site power generation. Companies in a variety of industries have sought to decrease their carbon footprint, and for some of them, investing in hydrogen energy technologies makes an attractive long-term investment.
The company, like many pure-play hydrogen stocks in the space, has suffered from a lack of demand and investment from its customers, who are also trying to keep costs down. First-quarter earnings for fiscal year 2024 were, again, emblematic of Bloom Energy’s current struggles, with both revenue and gross margins in decline on a year-over-year basis.
A recent silver lining has been Bloom’s ability to raise capital in this uncertain economic environment. The company had been hoping to raise $250 million in green convertible notes, but capital markets seemed to have more confidence in Bloom Energy, and the hydrogen company walked away with $350 million in green convertible notes priced at a rate of 3% annual coupon. With that kind of capital added to Bloom Energy’s $515.9 million cash balance, the company should have ample room to commit to new investments, even as customers are reticent to buy for now.
Global X Hydrogen ETF (HYDR)
Investors looking to hedge their bets by placing their capital in a large, diverse basket of hydrogen companies can look toward Global X Hydrogen ETF (NASDAQ:HYDR). The ETF manages $42.7 million in assets, investing in hydrogen production, hydrogen fuel cells, hydrogen technology and hydrogen integration businesses. According to Koyfin, HYDR has 29 holdings, and many of them are those pure-play hydrogen businesses that are deeply committed to the space and have the potential to surge in price, as the macro environment clears up.
Of course, investors should think hard about when they would like to invest in HYDR, given shares have fallen 22% on a year-to-date basis. Interest rate cuts could be a big deal for the space, especially given that it’s quite capital intensive. After the release of several promising macroeconomic data points, Federal Reserve rate cut bets are back on the rise, and this could help fuel HYDR and its hydrogen stocks in the near term.
On the date of publication, Tyrik Torres 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
