Why Hydrogen Stocks Had A Tough 2021

Our theme of Hydrogen Economy Stocks, which includes the stocks of U.S. listed companies that sell hydrogen fuel cells, related renewable energy equipment, and supply hydrogen gas, had a tough 2021, declining by over 20% through the year, considerably underperforming the S&P 500 which was up by a solid 28% over the same period. Now the sector has actually seen considerable deal-making activity in recent months with the cumulative number of large-scale projects announced roughly doubling to 522 between January and November, per the Hydrogen Council. ^[1] However, the theme has been weighed down by the prospect of higher interest rates, which has made investors sour on futuristic stocks, and also by some regulatory uncertainty, particularly in the U.S. where negotiations on the Build Back Better bill, which promises a production tax credit for green hydrogen, are currently stalled.

That being said, the theme could offer meaningful long-term upside. While the process of decarbonizing the transportation and electricity generation space is getting a lot of visibility, with the rising adoption of passenger electric vehicles and renewable energy generation, hydrogen is likely to be key to decarbonizing highly polluting heavy industries such as steel, cement, and fertilizer production, shipping, and long-haul trucking where electricity is a less viable option. Within our theme, Cummins – an industrial company best known for its engines and power generation products – has fared better than its peers, declining by about 4% year-to-date. On the other side, FuelCell Energy has fared the worst, with its stock losing about 50% of its value over the last year.

Below you’ll find our previous coverage of the Hydrogen Economy theme where you can track our view over time.

[11/1/2021] Why Have Hydrogen Stocks Rallied Recently?

Our theme of Hydrogen Economy Stocks, which includes the stocks of U.S. listed companies that sell hydrogen fuel cells, related renewable energy equipment, and supply hydrogen gas, has fared well over the last two weeks, rising by about 19%. In comparison, the S&P 500 was up by just about 3% over the same period. The theme also remains up by about 8% year-to-date. There are likely a couple of factors driving the gains. Firstly there has been considerable deal-making activity in the space in recent weeks. For instance, Bloom Energy , a company known for its modular fuel cell generators, won a 500-megawatt plus order valued at over $4.5 billion from an affiliate company of South Korea’s SK Group. Plug Power, a company that sells hydrogen fuel cell systems for material handling, announced that it would be working with Airbus and refinery major Phillips 66 on hydrogen technology. Moreover, renewable energy stocks, in general, have fared well, driven by strong earnings by solar players and rising energy costs.

Within our theme, SunPower, a company known for its high-efficiency solar panels, has been the strongest performer, rising by about 31% year-to-date. On the other side, FuelCell Energy, a company that designs and manufactures carbonate and solid oxide fuel cells, has been the weakest performer with its stock down by 28% year-to-date. See our theme on Hydrogen Economy Stocks for a complete list of stocks in the theme.

[10/11/2021] Hydrogen Stocks Continue To Underperform. Should You Invest?

Our theme of Hydrogen Economy Stocks, which includes the stocks of U.S. listed companies that sell hydrogen fuel cells, related renewable energy equipment, and supply hydrogen gas, has declined by about 16% year-to-date, compared to the S&P 500 which is now up by almost 17% over the same period. The decline is driven by the Covid-19 reopening and rising bond yields, which have resulted in slowing interest in futuristic stocks. Moreover, hydrogen isn’t a primary fuel, unlike oil and natural gas. It needs to be produced and this has to happen in a clean and cost-efficient manner and it will probably take a little more time for the technology to go mainstream.

However, there is likely to be a lot of incentive to accelerate the rollout of hydrogen for economies both large and small. With the growing urgency to fight climate change, governments in developed countries have already committed to big decarbonization plans. While the process of decarbonizing the transportation and electricity space is getting a lot of visibility, with the rising adoption of passenger electric vehicles and renewable energy generation, hydrogen is likely to be key to decarbonizing highly polluting heavy industries such as steel, cement, and fertilizer production, shipping, and long-haul trucking.

Within our theme, Cummins – an industrial company best known for its engines and power generation products – has been the strongest performer, rising by about 4% year-to-date. On the other side, FuelCell Energy, a company that designs and manufactures carbonate and solid oxide fuel cells, has been the weakest performer with its stock down by 43% year-to-date. See our theme on Hydrogen Economy Stocks for a complete list of stocks in the theme.

[9/2/2021] Hydrogen Stocks Have Corrected Further. Time To Buy?

Our theme of Hydrogen Economy Stocks includes the stocks of U.S. listed companies that sell hydrogen fuel cells, related renewable energy equipment, and supply hydrogen gas. While the theme is up by a solid 214% since the end of 2019, compared to a return of about 36% for the S&P 500, it has underperformed significantly this year declining by about 14% year to date, compared to the S&P 500 which is up by 17%. That being said, the recent correction should give investors a good entry point into this futuristic theme, which is likely to be key to decarbonizing energy-intensive heavy industries including shipping, and heavy industries such as steel and cement. Per a report from the World Energy Council, hydrogen could account for as much as 25% of final worldwide energy consumption by 2050. Now while the production of clean hydrogen still faces obstacles, particularly in terms of cost, governments are likely to increasingly incentivize the sector given the increasing urgency to address climate change.

Within our theme, Air Products and Chemicals a company that sells gases and chemicals for industrial uses, has been the strongest performer, with its stock rising by about 6%. On the other side, FuelCell Energy a company that designs and manufactures carbonate and solid oxide fuel cells has been the weakest performer with its stock down by 43% year-to-date. See our theme on Hydrogen Economy Stocks for a complete list of stocks in the theme.

[6/15/2021] Does The Recent Correction, Regulatory Tailwinds Make Hydrogen Stocks A Buy?

Our theme of Hydrogen Economy Stocks includes the stocks of U.S. listed companies that sell hydrogen fuel cells, related renewable energy equipment, and supply hydrogen gas. While the theme is up by a solid 173% since the end of 2019, compared to a return of about 32% for the S&P 500, it has underperformed significantly this year declining by about 4% year to date, compared to the S&P 500 which is up by 14% this year. Does the recent underperformance give investors a good entry point into this futuristic theme? We think so, for a couple of reasons.

While traditional renewable energy sources such as solar and wind are being used in the electricity generation and transportation markets, hydrogen is likely to be crucial to helping decarbonize sectors including aviation, shipping, and heavy industries such as steel and cement. These industries aren’t well suited to shift to battery-based technologies given the cost and weight-related constraints and hydrogen could play a major role in these areas. Investment bank UBS has indicated that hydrogen could make up 10% of global energy consumption by 2050, with potential investments in the space rising to as much as $1 trillion. The sector is also likely to see increasing regulatory support. The Biden Administration has pledged to slash U.S. greenhouse gas emissions to half of their 2005 levels by 2030, causing increasing urgency to invest in such technologies. Moreover, with lawmakers drafting out the details of the U.S. infrastructure bill, it’s also likely that futuristic energy sectors such as renewables and hydrogen could get a boost.

Within our theme, Cummins – an industrial company best known for its engines and power generation products, and Air Products and Chemicals a company that sells gases and chemicals for industrial uses, have been the strongest performers, with their stocks rising by about 9% each. On the other side, First Solar has been the weakest performer with its stock down by 21% year-to-date. See our theme on Hydrogen Economy Stocks for a complete list of stocks in the theme.

[4/14/2021] Why Are Hydrogen Stocks Underperforming

Our theme of Hydrogen Economy Stocks, which includes the stocks of U.S.-based companies that sell hydrogen fuel cells, related renewable energy equipment, and supply hydrogen gas, is down by about 3% year-to-date. In comparison, the S&P 500 is up by almost 10% over the same period. The current underperformance comes as declining Covid-19 cases and rising bond yields have taken some sheen off growth and futuristic themes. Within our theme, Cummins – an industrial company best known for its engines and power generation products – has been the strongest performer, rising by about 15% year-to-date. On the other side, FuelCell Energy has been the worst performer, with its stock declining by about 17% year-to-date. However, we think that there are some key trends that could drive the performance of these companies going forward.

During the virtual climate summit held this week, President Joe Biden committed that the United States would reduce its greenhouse gas emissions by between 50% to 52% below its 2005 emissions levels by the year 2030. The U.S. has also pledged to achieve carbon neutrality by 2050. Now while the process of decarbonizing the transportation and electricity space is ongoing, with passenger electric vehicles and renewable energy sources such as solar and wind gaining traction, hydrogen is likely to play a larger role in decarbonizing highly-polluting heavy industries such as steel, cement, and fertilizer production, shipping, and long-haul trucking. Although hydrogen technology is certainly a long-term bet, with investments in the space still remaining small relative to the broader energy industry, regulatory tailwinds could help drive hydrogen stocks in the medium term.

[4/14/2021] Why Are Hydrogen Stocks Underperforming

Our theme of Hydrogen Economy Stocks includes the stocks of U.S. listed companies that sell hydrogen fuel cells, related renewable energy equipment, and supply hydrogen gas. The theme is up by a solid 190% since the end of 2019, compared to a return of about 28% for the S&P 500. However, the theme has underperformed this year declining by about -1% year to date, as rising bond yields have taken some sheen off the high growth sectors. The S&P is up by 10% over the same period. Within our theme, Cummins – an industrial company best known for its engines and power generation products – has been the strongest performer, rising by about 15% year-to-date. On the other side, First Solar and Bloom Energy have been among the worst performers, declining by about -20% year-to-date and -16% respectively, year-to-date. So does the recent pullback present a good entry point for investors into the hydrogen space?

Although rising yields and stronger vaccination rates in the U.S. make a strong case for investors to move back to cyclical and value names, we think the hydrogen space could see some regulatory tailwinds in the medium term benefiting the stocks in our theme. With the Covid-19 stimulus signed into law in early March, Democratic lawmakers who control the House and the Senate (albeit by a slim margin) are likely to turn their attention to climate-related issues, which are a key component of President Joe Biden’s agenda.

[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.

FuelCell Energy (NASDAQ: 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 (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.

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