If you hadn’t noticed, the stock market isn’t doing so hot lately. Almost nothing is delivering a plus sign. But I’ve got my eye on a sector that I expect to deliver lots of plus signs over the coming months, and to begin doing so much sooner than most other stocks…
I’m talking about green hydrogen.
Like most other stock market sectors, green hydrogen stocks had been making some nice headway during July and August.
But the stock market’s summertime progress has been all but wiped out – converting modest gains into sizeable losses. Speculative stocks like those in the green hydrogen sector have borne the brunt of this decline.
But speculative stocks often subject investors to stomach-churning volatility, on their way to delivering outsized gains.
Let’s consider a handful of classic examples…
Even the Greatest of Stocks Stumble
Back in 2000, Amazon.com Inc. (AMZN) shares fell 66% between Jan. 3 and Oct. 10. If you purchased the stock that day, your investment would have tumbled another 80% over the next 12 months!
But if you held onto your position, it would have recovered its losses and doubled your investment within three years. After four years, that gain would have increased to 400%, 1,000% after 13 years, and 10,000% after 20 years.
Remember, those are the returns you would have reaped from a stock that fell 80% immediately after your purchase.
Apple Inc. (AAPL) shares underwent a similar metamorphosis – from mega-loser to mega-winner.
During the early months of 2000, they fell 66%. If you purchased the stock at that moment, your investment would have tumbled by an additional 42% during the next three months.
But if you held on, that investment would have recovered its losses to produce gains of 400% in five years, 1,000% in seven years, 2,000% in 10 years, and an astounding 35,000% in 20 years.
These cherry-picked examples may not be typical, but they are more common than you might expect, especially within the universe of speculative, aspirational companies like those that typify the green hydrogen sector.
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The Past Doesn’t Determine the Future
In many ways, these profitless companies resemble “junior” mining companies or early-stage biotech companies. They are brimming with potential but lack the kind of success that produces profit growth.
A promising junior mining company, for example, may have a great resource project, but not enough capital to advance that project into production. At that stage, the mining stock is a faith-based investment; many pieces have to fall into place to reward that faith with a profitable outcome.
Early-stage biotech companies are identical. They enter the stock market as profitless companies with promising technologies and big dreams, while rarely possessing enough capital to advance those dreams all the way through clinical trials.
Many early-stage biotech companies fail, as do many junior mining companies. Similarly, I expect many green hydrogen companies to fail – or at least fail to deliver on their promise. But early setbacks, and/or wicked stock market selloffs, are not reliable indicators of future success.
During a panel discussion at an investment conference in 2015, the moderator asked those of us on the panel to name our favorite mining stock of the moment.
I named Ivanhoe Mines (IVPAF), a stock that had plummeted 86% during the preceding three years and proceeded to drop another 25% over the next six months.
But Ivanhoe recovered and has soared more than 1,100% since the day I gave it the thumbs-up at that conference.
Thanks to my familiarity with that stock, I jumped at the chance to recommend it to Speculator readers during the early 2020 stock market selloff.
Ivanhoe would have been an easy stock to leave for dead; it had performed so poorly for so long that many investors probably gave up on it, which is understandable. But even the greatest of speculative stocks can deliver disappointing results for uncomfortably long periods of time.
Stay the Course, and Don’t Lose Heart
I remain optimistic about the speculative stocks that populate the green hydrogen industry.
This industry is still in its infancy, and accordingly, many of the stocks I have my eye on are trying to establish a dominant presence in it. They might fail to do so, but it is much too early to know.
These stocks’ eventual success is not certain, but what does seem close to it is the long-term success and growth potential of the entire green hydrogen industry.
The bottom line: The green hydrogen story is one that deserves your attention.
And if you’re ready to take this emerging green hydrogen bull market by the horns, I have two newer recommendations in Fry’s Investment Report.
Both recommendations, like Amazon and Apple in the history lesson above, are on a downswing, but as I’ve illustrated in this article, I expect good things from both in the future.