In this article we discuss 10 best hydrogen fuel cell stocks to buy now. Clean energy stocks are gaining a lot of attention these days, but it’s extremely important to choose your stocks wisely if you want to profit from the upcoming wave of green energy worldwide. You can skip our analysis of the hydrogen fuel cell industry and click to read 5 Best Hydrogen Fuel Cell Stocks to Buy Now.
The world direly needs clean energy sources to avert climate disasters and maintain a sustainable growth of the economy. Governments worldwide are ditching non-renewable energy for clean energy sources for economic growth and environment-friendly business expansion. Hydrogen fuel cell is one of the top clean energy sources in the world. Hydrogen fuel cell uses chemical energy to generate electricity. They just need hydrogen (derived from water) for a continuous supply of electricity. This has catapulted hydrogen fuel cell stocks into the limelight. According to a report, the hydrogen fuel cells market size is expected to reach $13.7 billion by 2026, up from $2.5 billion in 2020, growing at a CAGR of 33% in the period.
The EV Market: Growth Catalyst for Hydrogen Fuel Cell Stocks
Perhaps the biggest growth catalyst for hydrogen fuel cell stocks is the electric vehicles market. A report suggests that fuel cell electric vehicle (FCEV) industry is expected to reach a market value of $15 billion by 2027, with a CAGR of 38% from 2020 through 2027. The market for hydrogen fuel cell-based cars and trucks in the U.S., Europe and Asia is extremely nascent and there is a huge space for growth. There are about 23,000 fuel cell-powered operational forklifts across the U.S, in addition to some fuel cell buses in use or planned in Ohio, Michigan, Illinois, Massachusetts and California.
Toyota is one of the largest automakers in the world focusing on the hydrogen fuel cell technology. The company is partnering with Honda to build fuel cell operations in Montreal. Toyota was one of the very few companies that started selling hydrogen fuel cell cars. Its fuel cell car Mirai is extremely famous in Japan. Some other hydrogen fuel cell cars include Hyundai’s Nexo and the fuel-cell version of the Honda Clarity.
Another major catalyst for hydrogen fuel cell stocks in 2021 and beyond would be the applications of fuel cells is data centers. As the world moves towards big data, companies need efficient data centers with uninterrupted supply of power to maintain their operations. Hydrogen fuel cell technology is the top choice of major technology companies for their data centers, as it ensures a steady supply of electricity in an extremely cost-effective fashion. In July 2020, Microsoft said it used hydrogen fuel cells to power data center servers over the course of 48 hours. The company plans to replace diesel engines with clean energy sources at its data centers in the near future, and intends to become carbon negative by 2030.
Like the energy industry, clouds of massive changes are also circling over the financial markets. The hedge fund industry’s reputation has been tarnished in the last decade during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 88 percentage points since March 2017 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Hydrogen fuel cells will see a huge demand in the future as aviation, trucking, and industrial companies weigh using environment-friendly technology to decarbonize the hard-to-abate sectors such as refining and steel production. Some technology companies are also looking into using hydrogen fuel cells in mobile devices. A few months back, it was reported that Apple was investigating use of hydrogen fuel cells in mobile devices as an alternative to conventional battery charging technology for long battery durations.
Governments worldwide have also started using hydrogen fuel cells to supply cost-effective electricity to remote areas, replacing diesel engines. Hydrogen fuel cell technology is also being used in hospitals and medical facilities where uninterrupted supply of electricity is needed.
Let’s take a look at the 10 best hydrogen fuel cell stocks to buy now. Our ranking criteria is based on the disclosed positions of famous hedge funds, fundamental financial health and growth catalysts of the top hydrogen fuel cell companies in the U.S.
10. FuelCell Energy Inc (NASDAQ: FCEL)
Connecticut-based FuelCell Energy designs and manufactures fuel cell power plants. The company’s SureSource hydrogen fuel cell power plant produces additional hydrogen beyond what is needed for power production, generating a stream of hydrogen suitable for industrial or transportation applications. The SureSource Hydrogen is also compliant with the State of California Low Carbon Fuel Standard and is considered carbon-negative by the California Air Resources Board (CARB).
In 2020, FuelCell Energy was selected by the U.S. Department of Energy for an $8 million funding award to support the design and manufacture of a SureSource electrolysis platform capable of producing of hydrogen.
A total of 17 hedge funds tracked by Insider Monkey had FuelCell Energy stock in their portfolios as of the end of the third quarter of 2020. The last time we observed an insider purchase in FCEL was in November 2018 when an insider purchased 100,000 shares at an average price of $0.75. Today, FCEL shares change hands at $15.
Bloom Energy ranks 9th on the list of 10 best hydrogen fuel cell stocks to buy now. The stock rallied in July 2020 after the company announced its strategy for the hydrogen fuel cell commercial market. Bloom said that it now sees hydrogen as a viable energy option as it strives to convert conventional energy plants to zero-carbon emissions plans for its clients. The company also said it will be deploying a 100% hydrogen-based system in South Korea. Its existing partnership with SK E&C has already sold 120 megawatts of fuel cells in South Korea, generating over $1 billion in revenue for the company.
A total of 17 hedge funds tracked by Insider Monkey held stakes in Bloom Energy as of the end of the third quarter. The net worth of these stakes is $176.1 million. First Eagle Investment Management briefly talked about BE in its 2020 Q1 investor letter:
“Bloom Energy and its hydrogen fuel cell peers performed very well early in 2020, as investors appeared to develop greater appreciation for the potential of fuel cell technology in an environment of falling natural gas prices. Bloom gave back all of this performance and more mid-quarter, however, as a financial restatement that delayed the release of their 2019 10K compounded the impact of the general coronavirus-related market selloff. A better-than-feared fourth quarter earnings report, which showed 50% growth in system acceptances, prompted a late-March rebound.”
NKLA ranks 8th in our list of the best hydrogen fuel cell stocks to buy now. Nikola is one of the world’s most famous electric car technology companies. The company is known for its hydrogen-powered truck, Nikola One, and several other hydrogen fuel cell projects. Earlier in January, the company Nikola secured an innovative electric rate schedule with Arizona Public Service Company for the development of hydrogen-based fueling solutions for the transportation industry.
As of the end of the September quarter, Philippe Laffont’s Coatue Management owns 3,697,467 shares of Nikola, worth $75.72 million. Overall, 17 hedge funds in our database held stakes in Nikola entering the fourth quarter. J.P. Morgan’s Paul Coster recently lowered his price target for Nikola, but said that the company can turn the corner in 2021 with the news cycle becoming “less drama-filled” and turning “generally positive.” Worm Capital isn’t as optimistic. Here is what they said in their 2020 Q3 investor letter:
I’ll give you an example of a landmine we recently avoided. Last fall, a relatively unknown company announced a major battery breakthrough that, they claimed, would compete with Tesla’s Semi all-electric truck. We began digging into the company, its founder, and the supposed technological breakthroughs. What we found was bizarre: Despite a charismatic CEO who claimed major advancements in cell chemistry that would improve vehicle range and efficiency, we couldn’t independently verify the company’s claims. Needless to say, after much digging, we passed on the investment.
That company, Nikola Motors, went public this summer. While retail and even institutional investors rushed into the stock, Wall Street analysts championed the company. It appeared, to us at least, that little diligence had been completed on this company. Cowen analyst Jeffrey Osborne, for instance, rated the company a “Buy.” His analysis? “We see Nikola as an intriguing investment opportunity,” he wrote. In a two-month period, its shares surged roughly 450%.
By September, however, the Nikola story appeared to be falling apart. Hindenburg Research, a short-seller, published a damning report, alleging fraud, titled “Nikola: How to Parlay An Ocean of Lies Into a Partnership With the Largest Auto OEM in America.” The report claimed Nikola had inflated its technological prowess, and over the next several days, the value of the stock began to plummet. [Nikola, now being investigative by the DOJ and SEC, denied Hindenburg’s claims.]
Though we chose not to short this company—as a rule, we tend to avoid shorting momentum stocks—it’s a reminder that long-term investment requires patience, conviction—and diligence. I bring up this anecdote to remind investors that, equally important to picking winners, is avoiding the losers. In this disruption “super cycle,” I anticipate there will be many imitators riding the coattails of industry disruptors. My philosophy is to only own the companies with the absolute best value proposition winning customers on the ground-level. This process, in my opinion, provides a significant margin of safety to sidestep the landmines.”
BLDP ranks 7th in our list of the best hydrogen stocks to buy now. Ballard Power Systems makes hydrogen fuel cells for automobiles. The Canadian company also manufactures proton exchange membrane fuel cell products. On Jan. 11, Raymond James analyst Michael Glen said that Ballard Power Systems is a strong investment opportunity for 2021, as he believes this year will be a “watershed moment in the history of the hydrogen economy.” Ballard Power Systems in December 2020 received purchase orders from Van Hool for 10 fuel cell modules to power Van Hool A330 buses to be deployed in the Netherlands.
Of the 816 hedge funds tracked by Insider Monkey, 20 held stakes in Ballard Power as of the end of the third quarter, up from 16 funds a quarter earlier. Lakewood Capital doesn’t agree with these hedge funds. Here is what Bozza said in Lakewood’s 2020 Q2 investor letter:
“In recent months, fuel cell stocks have once again become one of the latest market crazes, with investors flocking to the sector despite the industry’s history of many disappointments, poor financial performance and undifferentiated technologies. The fund is short Ballard Power Systems, a consistently loss-making and cash-burning Canadian company that has recently seen its market capitalization swell to a remarkable $4.5 billion (up eight-fold from the end of 2018). We have tracked Ballard Power (and several other fuel cell stocks) for the past decade, and on five separate occasions, investors bid up the shares in a frenzy only to be left holding the bag months later when they came crashing down to earth.
Ballard Power, born in the height of the tech bubble twenty years ago, is a supplier of fuel cell “stacks,” which are layers of energy-producing units that are combined to generate power. The stacks are sold to original equipment manufacturers and systems integrators for applications such as transportation (bus, truck and rail) and material handling. A quick peek at Ballard’s financials reveals just how challenging selling fuel cell energy stacks to vehicle manufacturers can be. The company generates just over $100 million in annual revenues and has never earned more than $40 million in annual gross profit. 2019 revenues were actually 12% below what the company generated in 2017, and annual EBITDA losses and cash burn have averaged about $15 million and $25 million, respectively.
The source of recent excitement appears to center on the potential for Ballard Power to be a major supplier to the transportation industry as the demand for “green” energy sources increases. We are skeptical. We view fuel cell stacks as a low value-add product that is relatively commoditized. If the sale of these products ever became materially profitable for Ballard Power, we believe an equipment manufacturer could insource the technology relatively easily or simply switch to one of Ballard Power’s numerous competitors. With just $45 million of PP&E and an R&D budget of about $25 million, Ballard Power lacks the manufacturing infrastructure or technological expertise that would ever result in a sustainable and profitable competitive position. For example, Cummins, one of the largest global diesel and natural gas-powered engine manufacturers, acquired one of Ballard Power’s competitors in 2019 (for less than $300 million) and is already spending over $100 million in annual R&D on fuel cell, hydrogen production and hybrid power systems investments.
As the current euphoria wears off, we expect the reality of Ballard Power’s poor business prospects to once again set in as the company continues its long history of disappointing financial results. Setting a price target on a perpetually loss-making business with murky prospects like Ballard Power can be a challenge, but if its market capitalization merely settled at the level of prior peaks, the stock would be down over 80% from current levels. As one former senior industry participant told us, “I just can’t get my head around the valuation, it’s just crazy… Ballard doesn’t even have a story.”
6. Plug Power Inc (NASDAQ: PLUG)
New York-based Plug Power is one of the biggest players in the hydrogen fuel cell industry. The company makes hydrogen fuel cell systems that replace conventional batteries in cars and other devices. Plug Power shares have seen a phenomenal rally over the last 6 months, gaining a whopping 666% in value. French automaker Renault on Jan. 12 said it signed a memorandum of understanding with Plug Power to develop, build and market electric fuel cell light commercial vehicles.
D.E. Shaw’s hedge fund leads the 21 hedge funds tracked by Insider Monkey having stakes in Plug Power as of the end of the September quarter, with 18.34 million shares of the company, worth $245.98 million. Here is what Massif Capital said about PLUG in its 2020 Q2 investor letter:
“We also closed our short position in Plug Power this quarter as the market was subsumed with enthusiasm over their recent acquisitions, resulting in an almost 80% rally in the stock over ten trading days. Our decision to exit was painful at the time as we were forced to reconcile with a collective exuberance that was (and is, in our opinion) not grounded reality. In hindsight, it was the correct decision as we avoided most of its recent vertical trajectory.”
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