Along with tech, innovative stocks, solar, wind, and EV, hydrogen stocks had a breakout year in 2020. From March lows, hydrogen stocks grew north of 250%, soundly trouncing the S&P 500. However, 2021 has been a bit of a different story. First quarter saw a pretty steep pull back in clean energy across the board. Second quarter has been sideways but still, hydrogen stocks are 40% off their 2020 highs.
Now, there are a lot of signs that hydrogen stocks are getting ready for another breakout. A closer looks reveals three key reasons why…
We took a closer look at all three reasons. Plus the best hydrogen stocks to buy ahead of the breakout.
Many people don’t realize that hydrogen is the most abundant element on the planet. It’s actually contained in massive quantities in various organic matter such as, water and hydrocarbons. Not only is it in incredible abundance, but it also has extremely high energy content by weight.
This makes hydrogen an excellent source of power, particularly when they power fuel cells. Fuel cells are like batteries but don’t rundown or need to recharge as long as there is a consistent source of energy fueling them. Fuel cells are crucial to the clean energy movement and are used to power cars, trucks, buildings and backup power systems like generators.
From a commercial standpoint, fuel cells play a critical role in many companies adhering to new ESG standards. Companies like GM are pouring billions of dollars into hydrogen and fuel cells in an effort to reduce emissions standards (more on that in a minute).
But what makes hydrogen and fuel cells even more attractive is that fuel cells can be grid independent. This means that consumers can power their homes or their generators without relying on an outdated and increasingly problematic power grid.
Over the past year, we the West Coast and Texas have seen extreme weather in the form of droughts, heat waves, and ice storms. All of these weather events have caused the power grids to shut down in some way. Texans went weeks without power or water during the month of February and the West Coast has to contend with rolling blackouts during days when the temperature reaches 120 degrees.
Consumers have already accelerated their movement to alternative energy. We recently wrote why solar stocks are poised to grow as solar installations soared in the first quarter by 46%. And Hydrogen powered fuel cells can be an outstanding alternative to this power grid.
The U.S. Department of Energy says hydrogen “can deliver or store a tremendous amount of energy” and “can be used in fuel cells to generate electricity, or power and heat.”
Hydrogen can prove to be a more consistent source of energy than solar once the technology can harness it efficiently.
It sounds counter-intuitive that hydrogen could not be environmentally friendly. In fact, hydrogen itself is itself, a clean fuel and very environmentally friendly. Manufacturing hydrogen, however, becomes energy intensive and can produce carbon emissions.
Today, about 99% of hydrogen is produced from what is called Gray Hydrogen. Gray hydrogen is primarily derived from natural gas and causes large amounts of CO2.
The move is to now migrate away from Gray Hydrogen toward Blue or Green Hydrogen.
Green Hydrogen is the cleanest but also the most expensive method of manufacturing hydrogen. It’s made through a process known as electrolysis, which splits water into hydrogen and oxygen using electricity from renewable sources. Experts feel the Green Hydrogen will be the method of the future but won’t be cost effective until 2040.
So, currently, many companies are focused on Blue Hydrogen. Producing Blue Hydrogen uses natural gas, but captures emissions and stores or reused. So, Blue Hydrogen is currently the most cost efficient and cleanest way to produce hydrogen.
Three major car companies have already begun pouring billions of dollars into manufacturing hydrogen fueled cars.
GM recently committed $35 billion into electric and autonomous vehicles through 2025. They see tremendous opportunity for fuel cells in military, commercial vehicles, rail and maritime.
BMW and Jaguar Land Rover also began testing hydrogen fuel cell cars this year.
BMW described hydrogen fuel cell tech as having the “long term potential to supplement internal combustion engines, plug-in hybrid systems and battery-electric vehicles.”
It’s not just the car companies jumping on the hydrogen band wagon. Thousands of other companies are being held to new standards governed by ESG (Environmental, Social and Corporate Governance).
Investors are having a greater say how companies treat the environment and with an emerging class of millennial investors very focused on impact investing, the trend could greatly accelerate.
The two best hydrogen stocks that could benefit from the emerging hydrogen breakout are NextEra Energy (NEE) and General Motors (GM).
We have been bullish on NextEra Energy all year and though it has seen a recent pullback along with other clean energy stocks, it’s ready to ride a new wave of growth.
Utilities are here to stay and NextEra Energy’s focus on renewable energy like hydrogen is taking advantage of a megatrend that is likely to last for many years given the shift away from fossil fuels.
This makes NextEra Energy a very profitable and growing company within a very secure and growing industry.
NextEra Energy current dividend yield is approximately 2% based on the current stock price, but tends to get increased 8% to 10% on an annual basis. The dividend is easily paid out of current year profits.
We already mentioned General Motors and their commitment to hydrogen based energy. GM has been riding a wave of momentum and is up 138% in the past year. Their commitment to clean energy shows they are staying on top of innovation and trends.