What happened
Shares of alternative energy stocks had a great run to start the week with many climbing double digits. Plug Power (PLUG 2.80%), Bloom Energy (BE 1.05%), Ballard Power Systems (BLDP +2.07%), and FuelCell Energy (FCEL 1.36%) were up as much as 15.3%, 13%, 15.3%, and 21.8% respectively.
At 12:30 p.m. EDT, shares were still trading 12%, 11%, 13.9%, and 13.7% higher, and clean energy stocks overall have had a great day on the market.
Image source: Getty Images.
So what
The biggest news this weekend was that Dominion Energy and Duke Energy have abandoned the Atlantic Coast Pipeline project and Dominion decided to sell its gas pipeline and storage business to Berkshire Hathaway. The move was a nod to the economic reality that fossil fuels are a shrinking proportion of the U.S. energy future and are quickly being replaced by alternative energy.
While this news is good from a macro perspective, there wasn't anything specific that will help any of these companies operationally. They still need to dig out from losing hundreds of millions of dollars combined each year, including 2019.
PLUG Net Income (TTM) data by YCharts
The market doesn't seem to have much regard for valuations right now and these clean energy stocks have been huge beneficiaries. But beware that none of these companies are exactly on solid footing financially.
Now what
The reality is that fuel cell stocks have been on a tear recently and with the market rising sharply today it's not surprising they're up as well. Momentum traders can often push shares up rapidly once they get on board, but shares can fall just as quickly as well.
What I would focus on in 2020 is the operational momentum of each of these companies. There's no question that the world is moving toward renewable energy and that should help clean energy and renewable energy stocks, but it doesn't mean that every company will benefit evenly. We've seen in the past that growth in wind and solar, for example, has not led to rising profitability or higher stock prices for the industry long-term. In fact, competition and low margins has led to bankruptcies and falling stock prices, which is something I fear could happen for fuel cell stocks as well.
We've seen fits and starts for fuel cell stocks before. But each time shares have risen companies have failed to live up to expectations and shares have fallen back to earth again. Given financial losses, this could easily happen again, so buyer beware after this quick rise in shares.
