Will Hydrogen Stocks Continue To Outperform?

Our theme of Hydrogen Economy Stocks includes the stocks of U.S. listed companies that sell hydrogen fuel cells, renewable energy equipment, and supply hydrogen gas. The theme is up by a solid 245% since the end of 2019, compared to a return of about 23% for the S&P 500, driven by increasing urgency to combat climate change, stronger support for clean energy under the Biden Administration, and the deadlines set by multiple countries to go carbon-free over the next few decades. Although the theme has outperformed this year as well, rising by 12% since early January, compared to gains of about 6% on the S&P, it remains off its recent highs, as rising bond yields have taken some sheen off the high growth sectors. Within our theme, FuelCell Energy – a company that develops fuel cell technology and operates power plants – has been the strongest performer year to date, rising by about 38%. On the other side, First Solar, the largest U.S.-based solar panel maker, is down by -17% year-to-date. See our theme on Hydrogen Economy Stocks for more details.

So what’s the near-term outlook like for the sector? While rising rates and declining Covid-19 cases make a strong case for investors to move back to cyclical and value stocks, the hydrogen space could see some regulatory tailwinds in the medium term. With the Covid-19 stimulus bill now signed into law, Democratic lawmakers who control the House and the Senate (albeit by a slim margin) are likely to focus on climate-related issues – a key component of President Biden’s agenda, potentially benefiting hydrogen stocks.

[Updated 1/20/2021] Hydrogen Economy Stocks To Watch As Biden Administration Takes Over

While the hydrogen economy, or the process of producing hydrogen and using it as a fuel, and replacing fossil fuels, largely remains a concept that has only gained a little commercial traction, this could be set to change as climate change is at the core of incoming President Joe Biden’s agenda. Hydrogen could help to cut carbon emissions significantly, as it can be used not just for transportation and electricity generation – two key focus areas of current renewable plans, but also for applications such as heating and industrial purposes such as cement and steel manufacturing. Our theme of Hydrogen Economy Stocks, which includes the stocks of U.S. listed companies that sell hydrogen fuel cells, renewable energy equipment, and supply hydrogen gas has rallied by about 26% since early January. (see our update below for a more detailed look at how these companies fit into the hydrogen space) A good portion of the gains came on Tuesday after the U.S. Department of Energy’s Office of Fossil Energy announced plans to make $160 million in federal funding available to Improve Fossil-Based Hydrogen Production, Transport, Storage, and Utilization. Although the funding is small, in the larger scheme of things, it likely gives investors confidence that the government will back the hydrogen industry.

[Updated 12/11/2020] Bloom, Cummins, First Solar: Stocks To Play The Hydrogen Economy

Interest in clean energy stocks has soared this year, driven by low-interest rates, improving economics, and the election of Democrat Joe Biden – who has proposed to spend as much as $2 trillion on fighting climate change – to the U.S. presidency. While solar and electric vehicle stocks have been the most high profile winners, another theme that appears to have caught investors’ interest is the concept of the “hydrogen economy” or the use of hydrogen as a fuel for transportation and other energy requirements, replacing fossil fuels.

Hydrogen burns much cleaner than petroleum-based fuels and can be produced using just water and energy or from hydrogen-rich gases such as methane. Hydrogen is also seen as a means of storing excess renewable electricity – as the electricity can be used to run a process of electrolysis, which converts water into hydrogen. Our theme of Hydrogen Economy Stocks includes the stocks of U.S. based companies that sell fuel cells, renewable energy equipment, and supply hydrogen gas. Below is a bit more about the companies in our theme and how they fit into the broader picture of the Hydrogen Economy.

Bloom Energy sells solid oxide fuel cell generators called Bloom Energy Servers that use natural gas or biogas as fuel via an electrochemical process without combustion. The company also develops hydrogen fuel cells – that use only hydrogen gas as fuel. The stock is up 245% year-to-date.

Bloom Energy

FuelCell Energy (NASDAQ

NDAQ
: FCEL) is a company that designs and manufactures carbonate and solid oxide fuel cells that run on hydrogen-rich fuels such as natural gas and biogas. The company also operates over 50 fuel cell power plants across the world. The stock is up 229% year-to-date.

Air Products and Chemicals

APD
(NYSE: APD), a company that sells gases and chemicals for industrial uses, is one of the world’s largest producers of hydrogen. Earlier this year, the company outlined plans to build a sizable hydrogen plant powered by 4 Gigawatts of renewable electricity in Saudi Arabia. The stock is up 14% year-to-date.

First Solar is the largest U.S.-based solar panel manufacturer. Solar players could also stand to gain from the hydrogen economy as hydrogen can be produced from water by a process of electrolysis, using solar-generated electricity. Solar power typically sees intermittent production and supply-demand mismatches, so excess power could be “stored” in hydrogen. The stock is up 55% year-to-date.

Cummins (NYSE: CMI) – an industrials company best known for its engines and power generation products – has been working on hydrogen-based technologies for almost two decades. The company acquired Hydrogenics, a leading Canadian hydrogen fuel cell player last year. The stock is up 23% year-to-date.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

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