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The race for “net-zero” is the talk of the town these days. Governments around the world are pledging to create a net-zero world by 2050. Besides the environmental impact, it is expected to be big business. According to advisory group Oxford Economics, this is a $10.3 trillion opportunity. Hydrogen will play an important role in this transformation. Therefore, it’s a good time to take a careful look at some hydrogen stocks.
I say “cautiously” because of a recent study from McKinsey. The report states that the world’s 20 largest economies (i.e., the G20) will require an additional investment of around $35 trillion from the private sector over the next 10 years to meet net-zero targets by 2050.
Will we see 2023 and its clean energy initiative as another bubble that was bound to burst? Maybe, but elections have consequences. For now, this is creating an opportunity in hydrogen-related stocks.
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Taking long positions in any of these stocks can be difficult. However, if you’re a nimble trader with a short-term outlook, these three companies may make your list of hydrogen stocks to watch.
Bloom Energy (BE)
BE Stock Bloom Energy logo on a building
Source: Miscellaneous Photography/Shutterstock
Bloom Energy (NYSE:Happen) manufactures and installs industrial-scale fuel cells capable of providing an adequate supply of uninterrupted power. Beyond that core business, Bloom Energy manufactures an electrolyzer that uses electricity to separate water into hydrogen and oxygen.
At this time, the demand for standby hydrogen power seems like a more practical solution which makes Bloom Energy an option for companies plug power (NYSE:plug), which focuses more on hydrogen in mobility applications.
The economics of hydrogen production remain challenging, and I won’t try to tell you otherwise. However, Bloom Energy’s revenue is coming in on the basis of actual projects, not just subsidies.
The concern about Bloom Energy, and nearly all stocks in this sector, is that it isn’t profitable yet. In fact, it may still be years away from profitability. However, the company has strung together four consecutive quarters in which revenue and earnings (albeit negative earnings) were higher on a year-over-year basis.
Air Products & Chemicals (ADP)
Air Products (APD) logo on the Arts Quest Building, Air Products is a sponsor of the Air Products Town Square at Arts Quest in Bethlehem, PA
Source: Andy Borisovsky / shutterstock.com
Air Products & Chemicals (NYSE:adp) is an interesting option if you want to hedge your bets in the hydrogen sector. It is first and foremost a chemical company. However, part of its business model is related to hydrogen.
In an article I wrote for InvestorPlace in March this year, I noted the company’s commitment of more than $15 billion by 2027 to deliver clean hydrogen in large quantities. Part of that investment is going into a $4 billion green-hydrogen production plant in Texas.
However, that’s not the only reason the company is one of the hydrogen stocks worth watching. As I mentioned with Bloom Energy, profitability is a challenge for companies in this sector. Air Products & Chemicals is an established dividend company that pays $7 per year. The company has also increased its dividend for 42 consecutive years.
Analysts expect earnings to grow 11% next year. In fact, 15 out of 24 analysts have a strong buy rating on ADP stock, and a consensus price target of $329.36 implies 13% upside from the stock price as of August 29, 2023.
Direxion Hydrogen EFT (HJEN)
An image of a hydrogen fueling station in front of a blue sky. Top Hydrogen Stocks to Buy
Source: DesignRage / shutterstock.com
As I mentioned above, the economics of hydrogen production make it a challenging area for stock picks. This is especially true if you are not well versed in the science behind the hydrogen industry. Another reason is that clean energy is a trending, but new sector. This means that it is nearly impossible to forecast long-term winners.
These are the two reasons Direxion Hydrogen ETF (NYSEARCA:Hjen) should be one of your hydrogen stocks to watch. It is a good option for speculative investors who want to manage their risk in this sector. Plug Power and Bloom Energy have more than 8% weightings in the fund.
However, this fund also gives you broad exposure to the sector, including exposure to international companies that are building the hydrogen economy in Europe and other regions of the world. ETFs are an ideal way to gain exposure to these stocks, which may be difficult to access for individual investors.
The fund is relatively small with only $29.5 million in assets under management. However, it only carries an expense ratio of 0.45%.
As of the date of publication, Chris Marcoch had no positions (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publishing Guidelines.
Chris Marcoch is a freelance financial copywriter covering the markets for over five years. He has been writing for Investorplace since 2019.
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