Fuel cell and hydrogen stocks are riding a wave of popularity as a new megatrend sweeps the market. So far, every single one of these stocks has exceeded expectations. But how long will the love affair between investors and the industry last? Will analysts and shareholders use new methods to evaluate business models, prospects, backlogs, submarkets and revenues, and, above all, the potential for profit? And will the market separate the wheat from the chaff? I’d say yes, that will definitely happen.
What the relevant companies need is proof of real sustainability. No greenwashing, no constant drip of buzzwords to spike their stocks. If you use renewable resources, recyclable products, and low-waste fuel cell and stack manufacturing techniques, shareholders will have your back. These days, large institutional investors are paying special attention to sustainability. Following an environmental, social and governance strategy, they can offer businesses tons of cash, propelling them to stock market fame.
Auto suppliers, transmission operators, gas manufacturers: Big corporations are shifting their positions toward the growing hydrogen market, buying into companies that possess key expertise and technology, such as electrolysis. Linde, and most recently, Italian grid operator Snam, invested in ITM Power, with Snam spending EUR 33 million on the stock acquisition. In total, ITM [London: ITM] intends to raise around EUR 165 million. A current market cap of over 2 billion is a good valuation for the company. Those betting on electrolyzers should take a closer look at Ballard and Bloom.
Wikifolio BZVision – Portfolio jumps more than 400 percent
Quick as a flash, FuelCell Energy went from around USD 2 to nearly USD 11 with an immense volume of over 200 million trades on some days. For a 50,000-share portfolio, the ideal basis for truly high price gains. When stocks were down, I gradually bought in, completely sold on the fuel cell story. Since such turbulence results in profit-taking, I had no doubts about divesting 30,000 shares in several tranches before parting from the last 20,000. Too early, in hindsight, but okay all the same.
I used the money to buy Bloom, Ballard and Nikola shares, plus “new” Tesla puts from Société Générale, at a strike price of USD 600 and a Dec. 17, 2021, expiry. FuelCell has excellent prospects, but the stock is getting too far ahead of itself for me. I’m expecting a consistent upward trend for Bloom and Ballard, the target for both being USD 30 this year. With extremely convincing business models designed for the medium-term, they promise massive company and, eventual, profit growth. My Nikola investment speculates on the firm’s successful battery and fuel cell approach for commercial vehicles. GM is out of the game, so someone else can step in. With Tesla, I have until December 2021 to bank on declining prices, time enough. The position also serves as insurance in general should the US stock market shift into reverse. In that case, the pressure would be on shares with which many investors have amassed extraordinarily high profits that can be realized in a bearish phase. It’s quite possible that declining fuel cell stock will be more than compensated by a rise in put options. Exercising the options will then provide fresh capital for purchasing fuel cell shares – just in case. This strategy paid off in early 2020, and I see quite a bit of evidence that this year could do the same. You’ll find my BZVision portfolio at wikifolio.com.
Share trading can result in a total loss of your investment. Consider spreading the risk as a sensible precaution. The fuel cell companies mentioned in this article are small- and mid-cap businesses, which means their stocks may experience high volatility. The information in this article is based on publicly available sources, and the views and opinions expressed herein are those of the author only. They are not to be taken as a suggestion of what stocks to buy or sell and come without any explicit or implicit guarantee or warranty. The author focuses on mid-term and long-term prospects, not short-term gains, and may own shares in the company or the companies being analyzed.
Author: Sven Jösting, written December 18th, 2020