A bumpy ride

Weichai Truck - Ballard
© Ballard

The highs and lows of hydrogen and fuel cell stocks in recent weeks can be best described as a bumpy ride following a significant and rapid increase in prices. It seems to me that the market has entered a major consolidation phase. Yet this is no reason to lose faith, especially as the wild fluctuations that have been raging since early December 2020 – with some stocks climbing more than 50 percent inside a month – begged a correction. A process which is now in full swing. At the end of the day, it’s the future of the industry that counts and so here I stand by the old stock market maxim: The trend is your friend.

One thing that’s clear is that there’s no getting around hydrogen – in all its colors – when it comes to the technology needed to tackle climate change at an international level. Indeed this is the approach that must be followed and supported by subsidy programs where necessary. Even electric transportation, which has so far been biased toward battery electric vehicles, could switch focus to fuel cells as time goes on – at least in my view. If you look at the plans of the automotive industry, and above all Tesla, the extraction of the necessary raw materials is very carbon heavy. What’s more, the sheer quantities of metals such as nickel and lithium that are involved do not really lend themselves to sustainable mining. Where the power for electric vehicles actually comes from is another matter, as is the development of charging infrastructure and line capacity.

As I see it, there is a certain invisible rivalry with hydrogen – and by that I mean predominantly green hydrogen but also blue hydrogen as well as the biomass-derived yellow variety – which is entering the market in ever-greater quantities at ever-cheaper prices. The questions then arise of how best to deploy hydrogen, which could be used in the commercial vehicle sector to power buses and trucks, and what the most suitable applications are for fuel cells, for instance as a means to generate electricity and heat in power plants, ships or even rolling stock. Cars will enter the frame later, but that won’t be for another three to five years.

Now the stock market is going through this aforementioned differentiation process. For me, this means that not every listed company in the sector (including fuel cell stacks, electrolysis, hydrogen production, logistics) will continue to experience rising prices if this is fundamentally at odds with the company’s true value or if there are only slim chances for revenue growth in the longer term. Plus, any news of orders, joint ventures, technological breakthroughs, sales and revenue growth, will now drive prices on a more individualized basis rather than all industry stocks continuing to move up and down as one. And there are plenty of acquisitions, mergers and joint ventures still to come.

Likewise Big Oil is at the ready to start investing massively in renewable energy and hydrogen as a way of distancing itself from fossil fuels. Some degree of takeover activity could be productive here. And if this does happen in the future I’m convinced that this will follow a more differentiated path. Things will get interesting, too, if major players in the field decide to improve their positions by splashing their cash – in other words taking over several companies within the sector and buying up their stocks – or if businesses agree to merge in order to gain scaling advantages and build a stronger market position.

Cummins Inc. demonstrated this gameplay perfectly in its acquisition of Hydrogenics and is now partnering with Air Liquide and Daimler. Fuel cell companies such as Ballard and Bloom, which I’ll be discussing in this article, and their stocks will go their own way – even if it is a bumpy ride. The tendency, however, will be for their stocks to rise, making for more severe price corrections for new and additional purchases as well as dramatic price hikes for the temporary realization of gains.

Anyone who is taking a middle- to long-term approach will be building up a portfolio of diverse companies so they can be in a position to weather the normal ups and downs of the stock market, with a crash always a real prospect of course, just in case increasing interest rates and rising inflation or some over-the-odds valuations make for an uncomfortable ride. Hold tight in the hydrogen and fuel cell saddle! The excessively high prices will now head back down but this should be seen only as a temporary blip and an indicator of the general mood in the market. Rest assured, this will in no way impact on the extremely positive trend in this sector. And now to the finer details:

Risk warning

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 March 20th, 2021

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