Investors have long been told of the great promise fuel cells hold for generating cheap and clean electricity. Using little more than hydrogen (the most abundant element on earth) and air, fuel cells can generate electric power with water as the only byproduct.
But despite the incredible potential of fuel cell technology to disrupt the energy market, it's been a long and arduous road to commercial adoption since its invention in 1838. Hydrogen fuel cells have been one of the toughest areas for growth-centered investors, with many seeing huge promise from the technology but few knowing how to profit from it.
The disappointing truth behind fuel cell stocks (at least so far) is that anyone investing in them since their entry into public markets has likely lost a fair amount of money in the process. We've seen numerous waves of fuel cell hype among retail investors, but quarter after quarter, these companies have continued to disappoint, and the air has been let out of every bubble.
After a decade of declining stock prices, it's finally beginning to look like the fuel cell market may have a chance at meeting its once-lofty expectations. At the very least, it seems that 2020 is poised to be an especially attractive entry point.
Since 2015, fuel cell stocks have been on the rise, and 2020 could be the last time to get these stocks before they surge.
Below, we'll address the key reasons you'll want to consider adding a few fuel cell stocks to your portfolio.
Four Reasons Fuel Cell Stocks Are Poised to Surge in 2022
Reason #1: The Period of Disillusionment Is Over
The quickest way to lose money in the stock market is to get caught up in false expectations. But with most fuel cell stocks trading close to 10-year lows and volume as thin as it is today, it's safe to say that the majority of “blue sky” investors have exited this sector already.
The hype that once bloated fuel cell stock prices has, for the most part, come and gone. Keeping in mind the enormously high premiums once priced into fuel cell stocks due to their disruptive potential, 2020 is shaping up to be quite the attractive entry point for long-term investors.
Reason #2: After Over a Decade in the Red, Fuel Cell Firms Are Beginning to Turn a Profit
After many quarters of posting negative income, several fuel cell companies are finally turning the corner and have posted positive income for the first time in the history of this sector. While no company has yet proven consistently profitable, the tide is clearly shifting.
In June 2014, for instance, a small fuel cell company by the name of Plug Power (NASDAQ: PLUG) recorded its first-ever quarterly profit. While the success of PLUG was short-lived, this moment signaled a crucial turning point in the niche fuel cell market.
Fast forward to 2020: Plug Power has been building on the momentum from June 2014 and hasn't looked back. While Plug Power lost $13.2 million in the third quarter of 2019, it is expected to net a positive $2.5 million on an EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) basis.
Reason #3: Fuel Cell Cars Are Hitting the Road
While the path to consumer adoption has been undeniably slow, fuel cell vehicles have long been regarded as one of the most potentially disruptive technologies to hit the automotive industry. As Car and Driver magazine said in its November 2014 issue:
The fuel-cell vehicle (FCV) is an automotive holy grail that promises the low emissions of a battery-electric vehicle (BEV) with the range and refueling convenience of a gasoline-powered car.
The sentiment is far from changed in 2020.
This once barren, niche market has very recently reached a clear turning point. Three fuel cell vehicles have been coming off the lots consistently, including the Hyundai Tucson Fuel Cell, the Toyota Mirai, and the recently revealed Honda FCX Clarity.
With each generation of fuel cell vehicles, these cars are becoming increasingly cheaper to produce while simultaneously lengthening their range and shortening fill time. The Honda FCX Clarity, for instance, boasts an impressive 435-mile range, a three-minute fill time, and a compact fuel cell powertrain that's one-tenth the cost of previous versions.
Of course, costs still need to come down, and infrastructure needs to develop, but these same caveats once applied to plug-in electric vehicles; and just look at where Tesla Motors (NASDAQ: TSLA) is today.
With three major automotive companies now pushing fuel cell technology, it's only a matter of time before hydrogen filling stations begin popping up across the globe. California will be the jumping point, with 46 stations currently in development, making for a total of 58 in the state.
Reason #4: Research Firms Suggest the Fuel Cell Market Is on the Cusp of Exponential Growth
When investing in any market, it's essential to take industry forecasts into consideration. There are entire organizations dedicated to determining market size and predicting revenue outlook, so you'd do best making use of that information.
According to data from Lux Research, the long-term outlook for fuel cell revenue is absolutely enormous, and 2020 is the year its exponential growth will begin to take off. According to Lux, a market worth less than $250 million today is expected to end up being worth $2 billion in about a decade.
Jointly, MarketWatch reports that the global PEMFC (Proton Exchange Membrane Fuel Cell) market is forecast to grow at a CAGR of 26.67% in terms of unit shipments through 2019. Market research firm Technavio holds a similar forecast for the global fuel cell market, with a CAGR projection of 30.40% during the same period.
And according to Freedonia, “Global demand for commercial fuel cells will almost triple to $4 billion in 2017, and then triple again by 2022 to $12 billion.” Navigant Research offers perhaps the most bullish projection, predicting global stationary fuel cell revenue to reach $40.0 billion in 2022.
A more conservative estimate was made in December 2019 by Business Wire. It states, "The global fuel cell market size is expected to reach USD 24.81 billion by 2025."
While each of these research agencies break down the fuel cell market in its own way, some more bullish than others, the key takeaway here is that strong growth is expected across the broad fuel cell market in both the near and short term.
Two Fuel Cell Stocks to Watch
Perhaps one of the most important habits of an intelligent growth investor is patience. As promising as any technology might be, it could end up taking many years to develop into commercial viability.
It's OK to take gambles every now and then, but you don't want to jump the gun by betting the farm on unprofitable companies. When it comes to fuel cell stocks, you'll want to reserve any investments for the speculative section of your portfolio right now.
Simply put, don't invest anything you aren't willing to lose, and keep an eye on the stocks you like until they show consecutive quarters of profit.
Below is a list of five fuel cell stocks worth keeping an eye on, with further detail on our top two breakout candidates.
- FuelCell Energy, Inc. (NASDAQ: FCEL)
- Hydrogenics Corp. (NASDAQ: HYGS)
- Plug Power, Inc. (NASDAQ: PLUG)
- HyperSolar, Inc. (OTC: HYSR)
- Quantum Fuel Systems Tech Worldwide, Inc. (NASDAQ: QTWW)
Fuel Cell Stock #1: Plug Power, Inc. (NASDAQ: PLUG)
Plug Power designs and manufactures fuel cell systems known as GenDrive and GenFuel that replace conventional electric batteries. At a market cap of ~$500 million, Plug is one of the largest hydrogen and fuel cell technology companies in the U.S.
Plug found its first viable market powering indoor forklifts, earning a number of highbrow customers including BMW, Walmart, Mercedes, Kroger, and Whole Foods. However, it's expected that the company will soon branch off into several other verticals, including airport ground support, airport tuggers, transport refrigeration units, and hydrogen generation.
Plug Power currently holds the largest share of the North American Class 1, 2, and 3 clean energy lift truck market. The company also recently announced a joint venture with Axane, an Air Liquide subsidiary, to meet growing demand for its GenDrive fuel cell products in the European material handling market.
In its most recent quarter, Plug Power reported its second consecutive quarter of record revenues, a massive increase in units shipped, and significant margin improvements. The company is well on the path to consistent profitability, and 2020 is looking like the year for that to happen.
Fuel Cell Stock #2: FuelCell Energy, Inc. (NASDAQ: FCEL)
FuelCell is an integrated fuel cell company that designs, manufactures, installs, operates, and services stationary fuel cell power plants. Specifically, the company provides distributed power generation for electric utilities, commercial and industrial customers, universities, and government entities around the world.
FuelCell Energy has made tremendous progress in the U.S. with a number of large projects that will be ramping up over the next several years. The company recently signed a 20-year agreement with Alameda County, California for a 1.4-megawatt fuel cell plant. Notably, this project is to replace a previous FuelCell Energy power plant installed back in 2006, which goes to show just how sticky these customers are.
In addition to the Alameda plant, FuelCell recently won four new orders from the U.S. Department of Energy that will add approximately $24 million to its backlog. Three of these projects are related to the commercialization of the company's solid oxide fuel cell (SOFC) technology, while the fourth involves a carbonate fuel cell power plant.
FuelCell is also gaining traction in Asia, specifically with a number of recent wins in South Korea. Most notably, the company has partnership with POSCO, a South Korean multinational steel-making company that is licensed to manufacture Direct FuelCell (DFC) power plants in South Korea.
As a part of this partnership, POSCO is building a new manufacturing facility in Pohang City with an initial production capacity of 100MW per year.
While performance in the fuel cell market has been less than ideal over the last decade, stock buying opportunities are finally opening up for investors who have been patient enough not to speculate. With the majority of fuel cell stocks trading near all-time lows and profitability on the near horizon, 2020 is shaping up to be a promising entry point.
Fuel cell companies remain high-risk, high-reward stocks, but a number of these tickers are worth keeping on your watch list as the industry shapes up through 2020. Look to Plug and FuelCell to be the ones leading the way.
Bonus Fuel Cell Stock #3
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