Please ensure Javascript is enabled for purposes of website accessibility

Why Fuel Cell Stocks Plunged Early Tuesday Before Making a Comeback

By Travis Hoium - Feb 23, 2021 at 5:50PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

High-flying stocks had a rough day.

What happened 

Shares of fuel cell stocks had a rough start on Tuesday before recovering a big chunk of their losses for the day. Bloom Energy (BE -0.17%) dropped 13.5% early, only to close the day down 1.1%, while Ballard Power Systems (BLDP 1.48%) fell 15.7% before closing down 1.8%, and FuelCell Energy (FCEL -0.76%) lost 22.3% of its value before closing 3.9% lower. It was a wild day, but there wasn't a lot that really happened. 

Bubble with H2 stuck inside.

Image source: Getty Images.

So what

The first impact on energy stocks this morning was a drop in oil prices. You can see in the chart below that oil prices dropped just before 10 a.m. EDT, and fuel cell stocks exaggerated that move by a wide margin. As oil recovered, so did the stocks. 

BE Chart

BE data by YCharts.

It didn't help that growth stocks also had a bad day, with investors selling off stocks that have typically performed well over the past year. Bloom Energy, Ballard Power, and FuelCell Energy certainly fall into that category. 

And the general market concern over rising interest rates has impacted fuel cell stocks more than others on the market. Large fuel cell installations, particularly commercial and industrial-scale projects built by Bloom Energy and FuelCell Energy, are often financed partly with debt. So as rates rise, the cost of electricity from these projects effectively goes up. 

10 Year Treasury Rate Chart

10-year Treasury rate data by YCharts.

Add all these factors together and you have a recipe for a down day for fuel cell stocks. But as oil prices recovered and the market overall bounced back, so did these stocks. 

Now what

There wasn't any news out today that should make investors change their long-term investment thesis for fuel cell or hydrogen stocks. There's still a huge opportunity in the power grid's transition to renewable energy, and these companies have a big role to play. The uncertainties about how big the market is and how quickly the transition will take place haven't changed in the last 24 hours. 

What investors should keep an eye on are interest rates, which could be a long-term drag for both renewable energy deployment and fuel cell adoption. If rates continue to rise or inflation strikes in the U.S., investment in fuel cells on a large scale could slow dramatically. The Federal Reserve has said rates won't rise for the foreseeable future, so I don't think the risk is high, but understanding why higher rates are bad for fuel cell stocks is important on days like today. 

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

FuelCell Energy, Inc. Stock Quote
FuelCell Energy, Inc.
FCEL
$3.90 (-0.76%) $0.03
Ballard Power Systems Inc. Stock Quote
Ballard Power Systems Inc.
BLDP
$6.86 (1.48%) $0.10
Bloom Energy Corporation Stock Quote
Bloom Energy Corporation
BE
$18.08 (-0.17%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
321%
 
S&P 500 Returns
111%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/25/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.