Fuel cells have existed for almost two centuries — but they’ve never gained much visibility.
They provided electricity and drinking water to the Apollo program astronauts, and many navies have used them to power small submarines since the 1990s.
Yet investors have a complicated relationship with these little boxes, which produce electrical currents and water via catalyzed reactions between hydrogen and oxygen in the air.
Fuel cell technology has taken a long time to reach a level of adoption at which companies can sell it profitably. As a result, fuel cell stocks have historically been very speculative — and have often lost investors considerable amounts of money, as you can see from the chart of FuelCell Energy (NASDAQ: FCEL) and Bloom Energy (NYSE: BE) below.
Yet fuel cell technology is one of the few industries that could actually benefit from the unpredictability of the last year.
Market intelligence firm Grand View Research now predicts that it will grow at a compound annual growth rate (CAGR) of 15.5% through 2027 — and investors may need to act fast in order to take advantage of that growth.
That’s because a series of unforeseeable black swan events has put fuel cell stocks in a very interesting position heading into 2021...
How the Fast-Growing NEV Industry Is Driving Fuel Cell Demand
In 2020, investors saw an explosion in the number of publicly traded new energy vehicle (NEV) companies — and a flurry of interest in the industry. It was perhaps the only investment trend of that year that was wholly unrelated to the COVID-19 pandemic — and it continues to attract tens of billions of dollars of investor money.
In China, two new NEV stocks hit international capital markets in 2020 — Li Auto (NASDAQ: LI) and XPeng (NYSE: XPEV). And several others, like Nio (NYSE: NIO) and Kandi Technologies (NASDAQ: KNDI), saw rapid growth in their share prices.
This sudden breakout of China’s NEV industry was widely seen as a product of a government initiative that seeks to replace at least 25% of China’s internal-combustion vehicle sales with sales of NEVs — including fuel cell vehicles — by 2025.
Meanwhile in the U.S., several NEV upstarts including Nikola Corporation (NASDAQ: NKLA), Lordstown Motors (NASDAQ: RIDE), and Hyliion (NYSE: HYLN) went public through mergers with special purpose acquisition companies (SPACs) in 2020.
These companies saw double-digit returns just a few months after going public, driven by the impressive specifications of their prototype vehicles.
And some of these prototype vehicles, like the Nikola One and Nikola Two, use fuel cells to deliver considerably greater horsepower and longer range than competitors like the Tesla Semi.
All of this recent interest in NEV companies — some of which are working on fuel cell vehicles — has started to drive demand for companies that specialize in manufacturing and maintaining high-performance fuel cells.
What’s more, the incoming Biden administration is adding to the industry’s momentum.
President-Elect Biden’s Pro-Fuel-Cell Policy
Like most Democrats, President-elect Biden wants more aggressive environmental policy at the federal level — including tax and regulatory incentives that would discourage Americans from buying internal-combustion vehicles.
But to quote Sue Gander, managing director of EV policy for the Electrification Coalition, "Biden is a car guy. His dad was a car salesman. He gets the excitement around this technology."
Indeed, Biden’s environmental policy leans more on NEVs than on non-car solutions like public transit expansions. He wants to build 500,000 electric charging stations nationwide and is also believed to be in favor of expanding the federal tax credit on NEV sales. That’s very good news for the fuel cell industry.
Of course, it’s a crowded industry nowadays, and as we discussed earlier, many fuel cell stocks have a long history of letting investors down .
But our analysts have identified three companies that are uniquely well-positioned to benefit from the catalysts discussed above in the coming year…
Plug Power (NASDAQ: PLUG): A Fuel Cell Stock for Growth Investors
Plug Power (NASDAQ: PLUG) rose more than 800% in 2020 — but there are reasons to believe it still has room to run.
After many years of unprofitability, the company’s top and bottom lines are rising — rapidly. Revenue is up 23% year over year as of the most recent quarter, and the company’s annual net loss has fallen 18% in the last year.
With these kinds of earnings and revenue growth in mind, it’s no wonder that 10 of the 11 analysts covering the stock give it a “buy” rating.
Even those high-end price targets may be conservative given the company’s future plans. Plug Power currently counts Amazon (NASDAQ: AMZN), Home Depot (NYSE: HD), and Walmart (NYSE: WMT) among its customers — but they currently only use its forklifts.
These early-stage relationships with deep-pocketed customers provide lots of room for rapid revenue growth in the next few quarters.
The firm also plans to open its “gigafactory” — a 1.5-megawatt power plant — in the first quarter of 2021. The plant is already reputed to have several prospective public-sector customers and will help Plug Power diversify from vehicle propulsion into the utilities business.
Buy Plug Power (NASDAQ: PLUG) at market.
Plug Power is likely the fastest grower of the fuel cell bunch — both in the recent past and the near future. But buy-and-hold investors looking for a more stable pick should check out Ballard Power Systems (NASDAQ: BLDP)...
Ballard Power Systems (NASDAQ: BLDP): A Fuel Cell Stock for Value Investors
Ballard is nearly 20 years older than Plug Power — and provides a more value-oriented fuel cell stock play.
The company’s price-to-book value (P/B) and price-to-sales (P/S) multiple, although high by most standards, are considerably lower than those of other fuel stocks. It also has almost no debt.
What’s more, the company’s share price recently broke above its 52-week high — although it remains well below its early-2000s peak.
Ballard also has a diversified and international customer base operating in a variety of industries. It’s involved in the development of Audi’s fuel cell vehicle and has bus manufacturing partnerships with Belgium’s Van Hool, Canada’s New Flyer, and Poland’s Solaris.
With all this in mind, it’s easy to see why several analysts covering the stock give it a price target of $28.
Buy Ballard Power Systems (NASDAQ: BLDP) at market.
These two companies — Ballard and Plug Power — provide great exposure to both the growth-oriented and value-oriented segments of the fuel cell stock universe.
But there’s one more fuel cell company our analysts insisted on including in this report, one that’s further up in the fuel cell supply chain…
Nel ASA (OTC: NLLSF): A Pick-and-Shovel Play on Fuel Cells
Founded in 1927 and based in Oslo, Norway, Nel ASA (OTC: NLLSF) is one of the oldest and largest hydrogen producers in the world.
Although it’s a relatively small and thinly traded company, Nel has its hands in fuel cell vehicle development partnerships all over the world. It has plans to supply Hyundai and Nikola with hydrogen for their vehicles, and it’s also involved in the H2Bus consortium, which plans to deploy thousands of hydrogen-powered buses in Europe in the next few years.
The firm has seen its share price grow substantially this year — yet it still has a low P/B ratio and a near-zero debt-to-equity ratio.
Bearing these customer relationships and valuation multiples in mind, the average Nel analyst price target of $18.44 feels conservative.
Buy Nel ASA (OTC: NLLSF) at market.
Will You Miss the Fuel Cell Bus?
As we’ve discussed, fuel cell technology has reached an inflection point due to a variety of political and market pressures in the U.S. and China.
Early signals of mainstream fuel cell adoption are starting to pop up everywhere — in the earnings reports of fuel cell growth stocks like Plug Power and in the NEV prototypes of a variety of auto manufacturers.
In a few years’ time, there will likely be a stark difference in returns between investors who bought fuel cell stocks before or during this crucial year — and those who bought after.
Plug Power, Ballard Power Systems, and Nel ASA can keep you ahead of the curve. But their products aren’t necessarily the most advanced fuel cell technologies available to investors.
There’s an obscure company in this industry that is working on a fuel cell that can capture greenhouse gas emissions and use them to generate electricity.
In other words, fuel cell technology could soon produce a negative-emissions power source — thanks to this small, publicly traded company that Technology and Opportunity subscribers have been monitoring for months.
Click here to learn more.