President-elect Joe Biden has an ambitious plan for a clean energy future. This includes a comprehensive plan to “achieve net-zero emissions, economy-wide, by no later than 2050.” If this plan makes progress, hydrogen fuel is likely to be a major investment theme in the coming decades. It’s therefore not surprising that hydrogen-related stocks have surged in the recent past. I believe that the rally is far from over and this column will discuss three hydrogen stocks to buy for the long-term.
In terms of the market size, it’s expected that the hydrogen generation market is likely to reach $208.86 billion by fiscal year 2027. The companies discussed in the column are looking beyond the U.S. for growth. The European Union has “set a target to build 40 gigawatts of renewable hydrogen electrolyzers by 2030.” Therefore, the addressable market is significant and the adoption of hydrogen fuel is still at an early stage. This makes hydrogen stocks an attractive investment opportunity.
Let’s discuss three hydrogen stocks to buy to benefit from positive industry tailwinds:
Hydrogen Stocks to Buy: Plug Power (PLUG)
PLUG stock has gone ballistic, having surged by 927% for FY2020. Even before the positive catalyst of Biden’s energy plan, Plug Power had big plans for the next five years. A correction is imminent after the big rally. However, PLUG stock is worth keeping on the radar among the top hydrogen stocks to buy.
In the recent past, Plug Power was on a capital raising spree. As of November 2020, the company’s balance sheet had a total cash buffer of $1.7 billion. With this, the company is best positioned to aggressively pursue its green hydrogen strategy. The company intends to build five regional green hydrogen facilities in the United States. All the facilities are expected to be operational by FY2024.
It’s worth noting that even with the equity dilution, the stock continued to surge. The reason is the growth visibility for the coming years. As of September 2020, the company guided for annual sales of $1.2 billion and adjusted EBITDA of $250 million by FY2024. With the recent capital raise, I expect a revised guidance on the upside. An aggressive expansion plan for Europe can be the guidance revision trigger.
Overall, the best part of the rally for PLUG stock is yet to come. The stock can still deliver multi-fold returns in the next five years. Therefore, any correction would be a good opportunity to accumulate.
Ballard Power Systems (BLDP)
BLDP stock is another interesting name to consider among hydrogen stocks. The stock has already surged by 207% for FY2020. As growth initiatives are undertaken by the company, there is juice in the rally.
The company’s proprietary membrane electrode assemblies (MEA), is a critical component of all fuel cells. In September 2020, the company announced plans to expand MEA production capacity by six times. This will have a positive impact on the top-line in FY2021 and beyond. Ballard Power reported an order backlog of $128.1 million for Q3 2020. With Biden’s energy plan likely to accelerate adoption of hydrogen fuels, I expect the backlog to swell.
In China, the company has a joint venture with Weichai. China has a goal of 1 million fuel cell EVs by FY2030. Ballard Power is therefore positioned for growth outside the United States in the next decade. In Europe, Ballard Power partnered with MAHLE for fuel-cell propulsion system for heavy and medium-duty trucks. Canada is another potential growth market for the company.
From a financial perspective, Ballard Power reported a cash buffer of $361.7 million as of Q3 2020. In addition, the company recently closed an offering of common shares for net proceeds of $402.5 million. Therefore, there is ample financial flexibility to pursue aggressive growth.
Overall, Ballard Power will benefit from the focus on clean energy. Once the company’s EBITDA turns positive, BLDP stock will surge.
Air Products and Chemicals (APD)
APD stock was relatively subdued in FY2020, moving 14% higher. However, I would include the stock in my list of top hydrogen stocks to buy. Among the positives, the company has an attractive annual dividend of $5.36.
Air Products and Chemicals is a diversified company. Specific to the hydrogen economy, the company has an “onsite hydrogen generator that enables distributed generation of hydrogen fuel.” Further, the company developed a two-phase cryogenic compressor, which enables high throughput at liquid hydrogen-based fueling stations. In addition, the company deployed a 7500psi trailer for delivering hydrogen to automotive stations.
A key reason to include APD stock among the top hydrogen stocks to buy is the company’s robust cash flow and financial flexibility. This allows the company to invest aggressively in growth projects. Also, Air Products and Chemicals is set to expand globally. As an example, the company partnered with Saudi Aramco to build the first hydrogen fueling station in Saudi Arabia.
Overall, ADP stock is worth buying at current levels for capital gains as well as dividend income. I believe that the company’s share of hydrogen fuel income is likely to increase in the next few years as hydrogen adoption gains traction.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored more than 1,500 stock specific articles with focus on the technology, energy and commodities sector.