Renewable energy has been one of the strongest performing sectors in the market this year. YTD, the iShares Global Clean Energy ETF (ICLN) is up 88%. In contrast, the S&P 500 is up 10.6%.
Within renewable energy, there are several interesting areas, such as wind, solar, and fuel cells. The major reasons behind the industry’s outperformance are improvements in technology that are bringing costs down, while efficiency is improving and governments around the world are investing in renewable energy to reduce pollution.
Markets are forward-looking and they understand that attitudes have shifted concerning the global environment, especially among Millennials and Generation Z, who are increasingly stepping into leadership roles in the corporate world and public sphere.
At one time, “green energy” was a political issue. Think about President Reagan ripping off solar panels from the Whitehouse roof, shortly after his inauguration in 1980 or chants of “Drill, Baby, Drill” during the 2008 RNC.
However, environmental issues are becoming a bipartisan issue. Younger Republicans are much more likely to believe in climate change and think that the government should play a role in combating it. 79% of younger Republicans believe that the government should invest in alternative energy.
Fuel Cell Stocks
Within the renewable energy industry, fuel cell technology produces the least emissions. Fuel cells use hydrogen fuel to generate electricity with the only waste being water. In contrast, other sectors have some tradeoffs.
Wind and solar systems need an energy storage solution or energy generation, for periods when the wind isn’t blowing or the sun isn’t shining. Electric vehicles are still reliant on the grid, where the bulk of electricity comes from fossil fuels.
Due to these factors, many clean energy experts believe that hydrogen fuel cells are the ultimate solution for our energy needs, while other types of green energy are intermediary solutions. Investors who are interested in riding this trend should consider investing in Plug Power (PLUG), FuelCell Energy (FCEL), Ballard Power Systems (BLDP), and Bloom Energy (BE).
Plug Power (PLUG)
Among fuel cell stocks, PLUG is the clear leader in terms of gaining traction with its product, future potential, and stock price. YTD, PLUG is up 680%.
One reason that investors are getting excited about PLUG is that it’s attempting to transition from material handling to commercial vehicles which is a much bigger potential market. In line with this goal, PLUG acquired United Hydrogen and Giner ELX as its goal is to capture the entire hydrogen “value chain”.
PLUG sells hydrogen-powered, zero-emission forklifts. These have proven quite popular and are likely to see increased gains under a Biden administration that will offer generous subsidies to companies who invest in green energy.
PLUG’s forklifts are an effective demonstration of its technology, as its forklifts have a greater range and power than traditional forklifts. The company is now focused on expanding into other industries, where its fuel cells could offer value, such as transportation, commercial vehicles, and power generation. All of these are much bigger markets than the $30 billion forklift market which PLUG is already disrupting.
In the last 7 years, PLUG’s revenues have increased from $24 million to $315 million over a trailing 12-month basis. Currently, PLUG has a market cap of $10.1 billion. If the stock can successfully disrupt these new markets, then it has more room to run higher.
The POWR Ratings are bullish on PLUG, as it has a Strong Buy rating. It has an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade with a “B” for Industry Rank. Among Industrial – Equipment stocks, it’s ranked #6 out of 59.
Bloom Energy (BE)
BE makes fuel cell systems for power generation. Unlike many stocks in the clean energy sector which are still building prototypes, BE has an established business that has been operating for two decades. Over the last 12 months, it’s generated $662 million in revenue. The company projects that it will be profitable in 2022.
Currently, BE’s primary business is making fuel cells that are used as backup sources of power generation. They are currently used by utilities when the grid can’t handle power needs usually due to excess use or some sort of natural disaster. Due to high costs, BE’s fuel cells are only viable under these scenarios.
However, BE has been making some aggressive moves in creating a “hydrogen infrastructure”. However, the cost of creating hydrogen fuel cells has significantly come down due to advances in technology. Falling wind and solar energy costs are also lowering the cost of electrolyzation which is necessary to create hydrogen gas.
Unlike many hydrogen stocks that have been breaking out to new highs in recent weeks, BE remains range-bound between $12 and $22 over the past four months. However, if the sector remains strong, then BE is likely to follow its peers higher.
The POWR Rating are bullish on BE as it has a Buy rating. It has an “A” for Trade Grade and a “B” for Industry Rank. Among Industrial – Equipment stocks, it’s ranked #37 out of 59.
FuelCell Energy (FCEL)
FCEL is up 175% in November. The main catalyst for this rise was FCEL securing $8 million in Department of Energy funding for its electrolysis platform to produce hydrogen gas. The company believes that it’s an important step in the commercialization of its solid oxide electrolysis technique.
FCEL is different from PLUG and BE in that the company doesn’t generate a significant amount of revenue. While its market cap is $1.6 billion, it’s revenue over the past 12 months was $65 million.
However, investors have been getting excited by FCEL’s prospects, because its product addresses a huge market – helping utilities meet energy needs during periods when energy use is elevated or power production is disrupted. This is believed to be a $170 billion global market. So far, FCEL’s fuel cells have been mainly used for emergencies and pilot programs, many believe that its products will be viable on a cost-basis as costs trend lower over the next decade.
FCEL’s POWR Ratings reflect the stock’s potential as it has a Buy rating. It has an “A” for Trade Grade and a “B” for Buy & Hold Grade, Peer Grade, and Industry Rank. Among Industrial – Equipment stocks, it’s ranked #38 out of 59.
Ballard Power Systems (BLDP)
Between April and July of 2020, BLDP’s stock nearly tripled. Since then, it’s consolidated between $14 and $21. If the positive momentum in the sector continues, it’s likely that the stock will break higher from this range.
Like FCEL, BLDP’s valuation is based on its futu potential rather than its financials. The company is valued at $4.7 billion, while its sales were $117 million over the last 12 months.
However, the company has made several, promising strategic partnerships that could be quite lucrative if its fuel cell technology continues to evolve as the company believes. In the last year, it made a deal with commercial vehicle parts supplier Mahle to develop “zero-emission fuel cell systems” for commercial trucks. Additionally, it made a deal with Volkswagen to make fuel cells for its commercial trucks and passenger cars.
According to the POWR Ratings, BLDP is rated a Buy. It has an “A” for Trade Grade and a “B” for Buy & Hold Grade and Industry Rank. Among Industrial – Equipment stocks, it’s ranked #34 out of 59.
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PLUG shares were trading at $25.22 per share on Monday morning, up $0.86 (+3.53%). Year-to-date, PLUG has gained 698.10%, versus a 12.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. As a reporter, he covered the bond market, earnings, and economic data, publishing multiple times a day to readers all over the world. Learn more about Jaimini’s background, along with links to his most recent articles. More...
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