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These 2 Dividend Stocks Are Investing in This Niche Industry. Should You Do the Same?

Motley Fool - Sat Sep 16, 2023

Market veterans will likely recall that hydrogen fuel cell stocks like Plug Power and Ballard Power Systems were all the rage at one time. This alternative energy was going to change the world, after all.

And then, nothing happened. As it turns out, the world wasn't quite ready for fuel cells; the business wasn't quite ready for the world, either. This industry's stocks have mostly struggled for the past couple of decades.

You might want to put these tickers back on your radar, though. A couple of major oil companies recently made investments in hydrogen-based power solutions, thinking the movement will eventually displace the oil and gas business. One of these fuel cell companies, in particular, could already be buy-worthy.

Big oil is buying up stakes in little hydrogen

The hydrogen fuel cell movement isn't fading away -- it's still quietly moving forward as an inevitable part of energy's future.

A couple of big oil companies seem to think so, anyway. Chevron(NYSE: CVX)recently acquired a majority stake in a young company called ACES (Advanced Clean Energy Storage) Delta, while BP(NYSE: BP) just led a wave of funding for Advanced Ionics, which develops energy-efficient electrolyzers that ultimately generate hydrogen, which can then be converted into electricity.

ACES Delta also owns electrolysis technology, but its aim is the establishment of storage and delivery solutions. Its first project will be able to store up to 100 metric tons of hydrogen every day.

By themselves, the deals don't seem to mean much more than throwaway press releases to post on a slow news day.

These aren't the only such investments either company is making, though. Chevron is also working with Raven SR and Hyzon on a project to turn garbage into hydrogen. It's also a stakeholder in Aurora Hydrogen, which is working on technology that uses microwave energy to produce hydrogen without also producing carbon dioxide.

Meanwhile, BP is working with industrial gases company Linde to build a carbon capture and storage (CCS) facility and hydrogen production plant near the Gulf Coast in Texas. It's also now 40% owner of Australia's Asian Renewable Energy Hub, which it says has "the potential to be one of the largest renewables and green hydrogen hubs in the world."

And these are just a few of the hydrogen power initiatives BP and Chevron have been working on within the past year and a half. If the hydrogen fuel cell movement wasn't going anywhere, neither company would be bothering with any of them.

End users are starting to see the potential

It's not like investors haven't heard it before. In every case so far, it hasn't kept stocks like Plug Power or Ballard Power Systems propped up for very long, and for understandable reasons. Despite the apparent interest in this alternative energy, most of these companies remain unprofitable.

The movement, though, could be at a tipping point for a handful of reasons. One of these is the political will to promote this alternative energy. Taking a cue from other countries, in March the Biden administration earmarked $750 million to advance hydrogen electrolysis technology. It's not a massive amount, but it shows the current administration's stance on cleaner energy sources -- something supported by the majority of voters on both sides of the aisle.

Another subtle but powerful hint that hydrogen fuel cells' time has come is the number and range of manufacturers now tinkering with the technology. Airbus is working on large aircraft engines that are powered by hydrogen combustion and driven by the electricity that hydrogen fuel cells can create. Smaller hydrogen-powered aircraft are already taking to the skies.

Carmakers are on board, too, and have been for a while. They're ramping up development, and Toyota is leading the way. With its hydrogen engine technology now well refined, the company hopes to sell 200,000 such vehicles by 2030. If the concept proves successful, look for other automakers to augment their current EVs with yet another alternative to carbon-fuel cars.

Photograph of hydrogen-powered automobile engine.

A hydrogen-burning auto engine. Image source: Getty Images.

Pragma Market Research estimates the world's hydrogen-powered vehicle market will swell from last year's $1 billion to more than $43 billion by 2030. That figure is similar to one from Coherent Market Insights.

Looking at the bigger picture, PwC expects demand for hydrogen to be approximately quintuple between now and 2050. The biggest bottleneck? A lack of infrastructure to produce it. That's where projects like ACES Delta and Advanced Ionics enter the picture.

One hydrogen fuel cell stock to buy now

So if hydrogen fuel cells and hydrogen power in general are finally moving into the mainstream, which of the related stocks are worth owning? The aforementioned Ballard Power Systems and Plug Power are two tickers at least worth adding to your long-term watch list.

Anyone interested in jumping into the hydrogen power movement at its current stage, however, might do best with Bloom Energy(NYSE: BE).

It's not one of the more familiar names in the business, although it arguably should be. It's a $3.5 billion organization, and while not currently profitable, it's nearing that point. In fact, the analyst community is calling for a swing to a per-share profit of $0.39 on revenue growth of 30%. Then things are projected to really start to take off.

Chart showing past and projected revenue and earnings growth for Bloom Energy.

Data source: StockAnalysis.com. Chart by author.

This growth trajectory is largely rooted in the flexibility and efficiency of its technology. Bloom Energy's fuel cells are conventional in premise, but they're capable of producing electricity using a variety of fuels including natural gas, biogas, or hydrogen very efficiently. That's because the steam normally produced by the electrochemical process that converts hydrogen into electricity is recovered and turned back into fuel.

Bloom's systems are also readily scalable, meaning their users can fine-tune the amount of power they're producing, and then add or subtract capacity as needed. Its customers include Honda Motor, Alphabet's Google, Walmart, and IBM.

The advent of artificial intelligence and the giant data centers it requires is proving a particular boon for Bloom. Although most of its customers only need these fuel cells for backup power now, as hydrogen production initiatives like BP's Advanced Ionics and Chevron's ACES Delta gain traction, don't be surprised to see hydrogen fuel cells evolve into a primary power source.

Just remember that the market tends to be forward-thinking, and forward-pricing. In other words, stocks often reflect future growth more than they reflect the past, or even the present.

The only catch with Bloom or its rivals? Buckle up for plenty of continued volatility, and be prepared to hang on to any of these stocks for a while. Hydrogen power is here to stay, but it's hardly on a reliably firm footing yet.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. James Brumley has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, BP, Linde Plc, and Walmart. The Motley Fool recommends Chevron and International Business Machines. The Motley Fool has a disclosure policy.

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