Invest through pure-play firms or more diversified funds.
The economy of the future will rely more on green hydrogen than it does now. Hydrogen is the most abundant element in the universe. But, because it’s so reactive, it is generally bonded to other elements and not freely available. That means there’s a market for companies who produce it in its pure form. Mostly, that’s done with fossil fuels, creating what is known as gray hydrogen. Meanwhile, green hydrogen is made with renewably generated electricity used to separate water into hydrogen and oxygen using a tool called an electrolyzer. Fuel cells essentially perform the reverse operation to convert hydrogen into electricity to power vehicles or power the grid. There aren’t that many publicly traded pure-play green hydrogen companies, and the ones that exist are relatively new, which may make the diversification offered by green hydrogen exchange-traded funds, or ETFs, attractive. Here’s a look at six investments to consider.
Ballard Power Systems Inc. (ticker: BLDP)
Green hydrogen is an important component of the energy transition, both for power and transportation, says Bruce Kahn, portfolio manager at Shelton Capital Management. “We consider the fuel cell and electrolyzer companies as excellent ways to gain exposure to this trend,” he says. Ballard makes fuel cells that can power buses, commercial trucks, trains, ships, passenger cars and forklifts. The hydrogen its cells use can be created with fossil fuels or renewable energy, positioning it well as the energy transition won’t be an overnight shift. Last month, Ballard announced it secured an order from Stadler Rail for fuel cell engines to power the first hydrogen train in the U.S.
Bloom Energy Corp. (BE)
Another company that offers a good way to gain exposure to the green hydrogen investing theme is Bloom Energy, Kahn says. This company makes fuel cell power generation systems that can run on hydrogen, biogas and natural gas and can be adopted for utilities and the transportation industry. It also makes an electrolyzer that relies on the same technology as its power generation technology. But the company is not without risk. “Despite the positives of Bloom Energy, its debt load is a worry and something investors should consider before investing, especially considering the company is not profitable,” says AskTraders.com analyst Sam Boughedda.
Plug Power Inc. (PLUG)
Kahn also likes Plug Power for gaining exposure to the green hydrogen trend. In addition to making electrolyzers, the company also makes hydrogen fuel cells, which will become increasingly competitive with battery-powered electric vehicles. But Kahn cautions that there are risks to investing in the green hydrogen industry. “Scaling up production of electrolyzer plants, cost and reliability of the technology, as well as core infrastructure to move hydrogen around are significant headwinds to this emerging industry,” he says. “A slower-than-expected ramp-up of technology and changes in the cost structure of the technologies may slow implementation down, over and above the lack of infrastructure to move hydrogen around.”
FuelCell Energy Inc. (FCEL)
After the Inflation Reduction Act passed, this green hydrogen company celebrated. “Under the IRA, users and producers of fuel cell technology will be able to take advantage of investment tax credits, production tax credits for clean power and hydrogen, and carbon capture utilization and sequestration credits — all very important incentives for building and deploying more clean energy assets across the country,” FuelCell Energy said. As a manufacturer of fuel cell energy platforms for decarbonizing power and producing hydrogen, FuelCell is right in the middle of the green hydrogen trend. Boughedda has been encouraged by a recent uptick in sales. But the company isn’t profitable. “Despite the potential for significant rewards, pre-profit firms come with increased risk for investors,” he says.
Direxion Hydrogen ETF (HJEN)
One way to hedge against risks is to own multiple companies packaged in an exchange-traded fund. HJEN contains companies involved in hydrogen generation and storage, fuel cells, stations and hydrogen-based vehicles. Some companies in HJEN aren’t pure-play green hydrogen companies, but that could be an advantage. “While pure-play companies make attractive investments, their volatility may not be suitable for all investors,” Kahn says. Although major players in the gray hydrogen business, such as Linde PLC (LIN) and L’Air Liquide SA (AIQUY) — both of which are among this ETF’s top 10 holdings — aren’t pure-play green hydrogen stocks, they are expanding in the green hydrogen space. With their long expertise in the hydrogen business, those holdings help add to the diversification of this ETF and may also provide a cushion against volatility.
Global X Hydrogen ETF (HYDR)
Linde is also a holding in this ETF, as are automakers Toyota Motor Corp. (TM) and Nikola Corp. (NKLA), alongside purer green hydrogen plays like Ballard and Plug Power. “Given that the hydrogen theme is in the very early stages of adoption, we believe that investing in the Global X Hydrogen ETF provides the opportunity to invest both in the current leaders within the hydrogen value chain as well as the potential key players of the future,” says Global X analyst Madeline Ruid. Companies that stand to benefit from the advancement of the global hydrogen industry include those involved in hydrogen production, the integration of hydrogen into energy systems, and hydrogen fuel cells and electrolyzers, she says. “We believe now is a good time to invest in hydrogen because significant tail winds are in place that could lead to strong growth opportunities over the coming years,” she says.
6 green hydrogen stocks and ETFs to watch:
— Ballard Power Systems Inc. (BLDP)
— Bloom Energy Corp. (BE)
— Plug Power Inc. (PLUG)
— FuelCell Energy Inc. (FCEL)
— Direxion Hydrogen ETF (HJEN)
— Global X Hydrogen ETF (HYDR)
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6 Green Hydrogen Stocks and ETFs to Watch originally appeared on usnews.com
Correction 10/19/22: This story was previously published at an earlier date and has been updated with new information.
