Another day -- another great day for investors in the renewable energy sector. In midday trading Wednesday, shares of hydrogen producers and fuel-cell manufacturers Plug Power (NASDAQ:PLUG) and Bloom Energy (NYSE:BE) are climbing 10.2% and 12.4%, respectively, as of 12:10 p.m. EDT. At the same time, shares of lithium miner Piedmont Lithium (NASDAQ:PLL) are enjoying a 6.7% gain.
The question is: Why?
There's no news out on the wires about any of these three alternative energy stocks. No upgrades, no price target hikes -- and certainly nothing of substance from the companies themselves that would explain share-price spikes of roughly 7%, 10%, and even 12%! And yet, the broad themes in renewable energy that are supporting these stocks remain in full effect. Let's quickly review.
Plug Power and Bloom Energy, both of which got their start as pure-play "fuel-cell stocks," are both segueing higher up the supply chain and developing hydrogen production businesses, as well, to produce the "fuel" that will go into their fuel cells (and perhaps other companies' fuel cells, too) going forward. In so doing, they're positioning themselves to profit from an international trend toward developing hydrogen economies -- in particular in Europe, where governments plan to invest "hundreds of billions of euros in technologies enabling [Europe] to get a substantial share of its energy from hydrogen by 2050."
Whenever you hear about someone spending "hundreds of billions of dollars" on anything -- a stock price spike is sure to follow.
Next up: Piedmont, which is benefiting from the other big trend in alternative energy today. Piedmont signed a five-year supply agreement to produce lithium for Tesla last month. And as if that weren't already good news, soon after this deal was announced, researchers in Europe put out a study predicting that by 2050, every vehicle on Earth will be electric and need lithium for its batteries -- and lithium supplies on Earth are only half what we thought they were.
Both Plug, Bloom, and Piedmont are benefiting from significant macroeconomic tailwinds that are driving their stocks higher -- even today, when there's no particular news of note. To me, this looks like momentum investing, and for that reason, I have to warn you that it can be a dangerous kind of investing to rely on.
Why? Let me direct your attention, once again, to the target date for when all these wonderful renewable energy trends will come to fruition: 2050. Not to belabor the obvious, but 2050 is a long way away, and a lot might happen to change these hydrogen and lithium stories over the next 30 years.
Hydrogen vehicles could prove less cost effective than hoped. New lithium supplies could be found (perhaps in space?), driving down the cost of lithium. Or Lockheed Martin could finally perfect its small-fusion reactor, rendering both hydrogen and lithium moot.
Or more simply, both the hydrogen and lithium "stories" could prove 100% accurate... but the companies that produce the hydrogen and the lithium still fail to make a profit, just as the fuel-cell companies have failed to do for decades already.
I'm happy that investors in these companies are reaping windfall profits today. Just don't assume that today's stock gains will continue 30 years into the future -- because ultimately, companies need profits to sustain their stock prices, and for now, at least, profits are the one thing that all three of these companies lack.