It’s official: green energy is in. Governments worldwide are pushing for more environmentally conscious operations, supporting electric vehicles and integrating renewable energy into their power grids. With growing support, international interest and attractive incentives, private companies are following suit. As a result, the market is seeing growth in renewables, especially with hydrogen stock picks.

Renewable energy technology is ever-improving, and demand is increasing due to the global transition. Companies in the hydrogen sector present a great opportunity for investors. However, not all of them deserve a spot in your portfolio.

Today, I’ll look at three hydrogen stock picks that offer the best potential returns for investors. I screened the market using the following criteria:

• A buy rating or above from analysts,
• Full-year net income growth of at least 10% based on the latest annual report.

I arranged the results from highest to lowest net income growth.

Calumet Specialty Product Partners (CLMT)

Known for its specialty in hydrocarbon products, Calumet Specialty Products Partners, L.P. (NASDAQ:CLMT) also operates in the renewable energy segment under its subsidiary Montana Renewables. Montana Renewables is currently the largest SAF (sustainable aviation fuel) producer in the Western Hemisphere, boasting a 30 million gallons annual production capacity.

The company’s main operations are divided into three segments:

• Specialty Products and Solutions: manufactures waxes, gels, petrolatums, etc.
• Renewables: produces renewable hydrogen, diesel and sustainable aviation fuel (SAF). 
• Performance Brands: blends and markets its TruFuel, Royal Purple and Bel-Ray brands.

FY’23 saw Calumet return to profitability, with a net income of $48.1 million compared to last year’s net loss of $173.3 million, or a 128% improvement YOY. On a slightly sour note, adjusted EBITDA slid from $390 million the previous year to $260.5 million. The decrease is attributed to weather conditions and the temporary operational closure of the Montana Renewables refinery due to a cracked steam drum. 

Analysts rate CLMT stock as a buy. Its improving financials, excellent prospects, and Wall Street’s approval make CLMT one of the most attractive hydrogen stocks today. 

AES (AES) 

Based in Virginia, AES (NYSE:AES) is a power utility company with a global footprint that spans 15 countries, including the Netherlands, the Philippines and Vietnam. AES also operates in energy infrastructure, green hydrogen and other renewables. 

The company is partnering with AI Fund to improve the transition to renewable energy. The partnership aims to co-build companies focusing on using artificial intelligence to solve today’s energy challenges. 

AES Corporation’s FY’23 report saw revenue grow modestly from $12.6 billion to $12.7 billion. Meanwhile, net losses improved from $505 million in FY’22 to $182 million—a 64% improvement. Losses are mainly attributed to the company’s exit from coal-generated energy, which racked up $1.1 billion. 

Taking losses to transition to green energy proves that AES is committed to improving carbon emissions, making it one of the most attractive hydrogen stocks in the market. Better yet, adjusted EPS reached $1.76, exceeding the high end of guidance. 

“Overall, 2023 was AES’ best year ever in terms of both execution and financial performance,” says CEO and President Andrés Gluski. “We exceeded almost all of our strategic objectives, including increasing renewables construction by 100% to 3.5 GW and signing 5.6 GW of new PPAs.” 

Analysts are quite impressed with this hydrogen stock’s performance, rating AES stock as a strong buy. Maybe it’s time to buy AES shares before everyone jumps at the opportunity. 

Linde PLC (LIN)

If we’re talking hydrogen stock picks, Linde plc (NASDAQ:LIN) will almost always be mentioned. As an industry leader in capturing industrial gases, the company specializes in various technologies and industrial gases used for critical industrial applications. 

It has partnerships with companies like IndianOil, Celanese and Steel Authority of India Limited (SAIL), highlighting its strong market presence. H2 Green Steel recently joined that list of partners; Linde will build an on-site air separation unit that will help supply industrial gases to H2 Green Steel’s integrated plant and reduce emissions. 

Linde PLC reported mixed numbers for FY’23. Sales were down 2% YOY to $32.9 billion, but underlying sales increased by 5%. The company also reported a total project backlog of $8.5 billion. Lastly, net income reached $6.2 billion, exceeding the previous year’s $4.1 billion by 52%.

Linde is also part of the S&P 500 Dividend Aristocrats Index, which tracks companies that have increased their dividend payments for over 25 years, among other criteria. The company pays $5.56 annually, translating to a 1.28% yield. 

As one of the premier hydrogen stock picks in the market, 21 analysts rate LIN as a strong buy. That’s dividend yields and price performance on the table; if I were you, I’d take it. 

On the date of publication, Rick Orford 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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.