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BofA Securities analyst Haim Israel outlined the US$11-trillion, long-term investment potential of hydrogen power in late September.

Credit Suisse’s Stefano Bezzato followed suit in early December with Hydrogen: A new frontier, a 108-page primer on the promising long term future of hydrogen-based electric power generation.

More recently, Credit Suisse’s global strategist Andrew Garthwaite touted industrial gases companies – the sector is dominated by Air Liquide SA, Linde PLC and Air Products and Chemicals Inc. – as a strong overweight in his 2021 Research Outlook: Themes, Sectors and Styles published Dec. 16. Mr. Garthwaite believes there will be €460-billion in investment in hydrogen power in Europe alone by 2030.

The potential for hydrogen power is no doubt enormous. For investors, however, I strongly suspect that a finance bubble will appear in related stocks before imploding, and only after that point will the revolution really begin.

Green hydrogen, produced entirely with renewable power sources, currently accounts for less than one per cent of total production, and it is also not cost competitive with current technology. The vast majority of hydrogen is produced using fossil fuels, although some producers have offset the resulting environmental damage with carbon capture processes.

Credit Suisse sees Green Hydrogen becoming cost competitive in the next ten years. Additionally, there are numerous government incentives, notably in Europe, that will drive investment in the sector even if the path to cheaper costs is slower than expected.

It’s likely the path of hydrogen-related stocks will follow a similar path to cannabis companies and, more topically, lithium miners.

The expected transition to electric vehicles, powered by batteries containing lithium, drove an understandable investment boom in the sector that peaked in late 2018. Livent Corp., a dedicated lithium miner, debuted at US$17 in October 2018, and climbed to over $19 in the next two months.

When it became clear that the dominance of electric vehicles in the market was delayed, this led to a medium term oversupply of lithium. Livent’s stock price began falling, reaching a low of $4.19 in March 2020 but has since recovered to $17.

This is a common cycle. A well-justified excitement over new technological change, or legislative change in the case of cannabis, drives related stock prices higher. The optimism leads to numerous initial public offerings of stock for new companies dedicated to supplying goods and services necessary for the expected transition. Investment flows in faster than the change actually happens, leading to stocks trading at extreme valuation levels relative to revenues, then they all fall hard.

The hydrogen hype cycle is just beginning. I would expect related investments to rise precipitously in the next few years but then drop as it becomes apparent that green hydrogen as a competitive option to fossil fuels will take longer than expected. Only after that will the actual transition to hydrogen as a legitimate energy source spur a sustainable recovery for related stocks.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Fiera Capital Corp. (FSZ-T) Most people are not familiar with Fiera, but it is the third-largest wealth management firm in Canada. The shares tumbled in March but recovered during the summer as the stock markets rebounded from the spring setback. It’s one of eight high-yielding stocks that Gordon Pape recommends to boost your returns.

The Rundown

When will Canada’s big banks resume dividend hikes?

Canadian banks have a problem: They are sitting on too much money. So when can investors expect dividend hikes to resume? Dividend cuts, rather than increases, looked like a possibility earlier this year amid soaring unemployment and the sharpest economic contraction since the Great Depression. Share prices for the Big Six banks sank as much as 40 per cent in February and March, sending yields soaring to an average of 6.6 per cent. David Berman takes a look (for subscribers)

Fairfax CEO Prem Watsa touts traditional value investing amid frenzy for tech stocks like Shopify

Heading into the holidays, Prem Watsa delivered a pep talk to colleagues at Fairfax Financial Holdings Ltd. On a video call, the noted value investor explained why he’s hugely optimistic on the prospects for the company’s $40-billion portfolio, which has underperformed benchmarks this year because Fairfax doesn’t own any of the hot technology stocks that are carrying equity markets to historic highs, reports Andrew Willis (for subscribers)

U.S. cyclical sectors could shine in 2021 as they lead profit turnaround

Investors are looking for an economic and earnings recovery from the coronavirus pandemic to fuel gains in energy, financial and other cyclical sector stocks next year that could build on the late 2020 rally in the shares of those groups. The lead up to and early distribution of COVID-19 vaccines have driven up shares this quarter in these sectors that usually thrive during cyclical upswings. Reuters’ Caroline Valetkevitch said (for everyone)

Others (for subscribers)

The highest yielding stocks on the TSX, plus risk data

Monday’s analyst upgrades and downgrades

Monday’s Insider Report: Director invests $1.7-million in this homebuilder stock

Canaccord unveils its top 22 stock picks for 2021

A (markets) journal of the plague year

Others (for everyone)

High-flying Tesla joins S&P 500; skeptics say buyer beware

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Ask Globe Investor

Question: How does one calculate the adjusted cost base for a stock purchased through an employee biweekly purchase program and dividend reinvestment plan over an extended period of time? The program includes several stock splits over the course of my participation in the plan.

Answer: Calculating your ACB may not be as onerous as you think. First, determine the total dollar amount that you have invested. Don’t worry about stock splits or calculating the precise number of shares you acquired with every biweekly purchase or quarterly dividend reinvestment; just add up how much money you have spent in total. Second, determine how many shares you own now. Third, divide the total dollar value of your purchases by the number of shares you currently own. This is your ACB per share. Remember that your ACB per share will change slightly every time you make a purchase, so you will need to update your ACB to calculate your capital gain when you plan to sell shares. If you don’t have a record of your purchases, your program administrator may be able to provide them. (For more on calculating your ACB, including what happens when you sell only a portion of your shares, read my column here.)

-- John Heinzl

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