Shares of hydrogen-power stocks (and renewable energy companies in general) have been wildly up and down in recent weeks. With Russia's war on Ukraine straining the global energy industry, hydrogen is thought of as one of many solutions.
Hydrogen fuel cells are flexible and are being developed for everything from vehicles to energy-grid solutions. And since hydrogen can in some instances use existing infrastructure (like natural gas pipelines), development of hydrogen infrastructure could be economically viable sooner rather than later.
However, a key U.S. Senate vote on hydrogen subsidies was recently shot down, briefly sending hydrogen stocks lower in mid-July. Still, the long-term potential of hydrogen looks bright, although it will be a bumpy ride, given the many hurdles to this industry's advance.
If you're interested in building a well-rounded portfolio of hydrogen stocks, give Hyzon Motors (HYZN 2.97%), Bloom Energy (BE 0.22%), and Linde (LIN 0.66%) a serious look. Let's find out a bit more about these three stocks.
1. Hyzon Motors: A way to revamp long-haul trucking?
Let's start with the most speculative stock: Hyzon Motors, a self-styled "hydrogen mobility" company developing fuel cells for vehicles. Hyzon is specifically attacking the commercial transport segment. Its hydrogen-powered vehicles aim to replace diesel-powered internal combustion engines in big rigs, buses, and other industrial uses.
Hyzon is making great progress in developing these commercial vehicles and is already taking lots of orders on four continents (North America, Europe, Australia, and Asia). But here's the rub: Production of these vehicles and hydrogen-power parts won't really begin ramping up until next year and expand from there.
In the meantime, what investors are buying right now is a start-up: a company that presently doesn't generate any significant revenue (just $356,000 in the first quarter of 2022). And building a vertically integrated business that produces and services vehicles and simultaneously constructs hydrogen fueling infrastructure is going to cost a lot of money. To support Hyzon's tech research and development, the company had $407 million in cash and equivalents as of the end of March 2022.
That gives Hyzon some breathing room. Its adjusted EBITDA loss was $22 million in the first quarter, so it's not exactly on the brink of running out of money. But it does set up a race against the clock. If you decide to invest in it at all, keep it to a very small overall percentage of your portfolio (I generally start with well under 1% of my total investment portfolio's value).
But if Hyzon can get across the goal line, now looks like a decent risk-to-reward payoff (the enterprise value of the company is currently $379 million). I'm intrigued enough to throw a few bucks in its direction.
2. Bloom Energy: A fuel cell leader that could reach profitability soon
Let's pivot to a different type of hydrogen application, and a company at a different stage of its life: Bloom Energy. It develops hydrogen fuel cells for use in electricity distribution. Businesses might tap a Bloom fuel cell to power a building or act as backup for a mission-critical operation. A utility company might use a fuel cell to store power generated from wind (because the electricity might not be needed at the moment the wind is blowing). Or a cruise ship could use hydrogen to help cleanly supply its energy needs while at sea.
Hydrogen fuel cells are cool technology (the elegant control of a chemical process, the combining of hydrogen and oxygen, which creates electricity) with flexible uses, and Bloom is steadily picking up steam. It shipped a record number of its systems in 2021 and thinks it is on course to achieve over $1 billion in sales in 2022 for the first time (to be exact, $1.1 billion to $1.15 billion in revenue is the outlook). The company also says it has a backlog of orders worth $8.5 billion.
Though Bloom Energy is further along in monetizing its work than Hyzon, this investment should still be handled with care. Adjusted operating profit is only expected to be about 1% this year. Management believes it can grow revenue at a 30% to 35% compound annual rate over the next decade. Suffice to say Bloom is still very early in its journey. Expect above-average volatility in the stock price as a result.
But at this juncture, Bloom could also be at an attractive entry point. The company's enterprise value sits at just $3.1 billion. Keep a close eye on the balance sheet here as the company homes in on profitability (cash and equivalents are $286 million; debt is $523 million).
If Bloom turns a corner in the next year or two, as expected, and becomes self-sufficient, things could get interesting. In the meantime, take a similar approach to investing in this stock as with Hyzon.
3. Linde: Industrial gas giants are a bet on hydrogen, too
When constructing a well-rounded portfolio, investors should balance small up-and-coming companies with older tried-and-true stalwarts. When putting together a collection of hydrogen stocks, a company like Linde could be slotted into that stalwart position.
Linde is a sprawling industrial business, producing gases for all sorts of industries, like manufacturers, technology device companies, and healthcare providers. Included in its end markets: hydrogen for use as an energy fuel.
Granted, hydrogen as a fuel source is a small piece of the Linde pie. Its Chemicals and Energy business made up just 21% of total revenue in 2021, with hydrogen making up just a fraction of that. But providing hydrogen for more renewable power generation is a priority for Linde, and this giant will play an integral role if hydrogen power turns into a full-blown industry one day.
So why put Linde in a hydrogen portfolio? From a purely financial standpoint, it can act as ballast over time if you're investing in more-volatile pure-play hydrogen stocks. Historically, the company generates operating-profit margins of more than 20% (over 17% last year, as margins are still rebounding after Linde completed its megamerger with Praxair back in 2018).
But this is a fantastic dividend stock (currently yielding 1.69%) that generates stable financial results. Shares currently trade for 22 times trailing-12-month free cash flow, a reasonable price for a stable but steadily growing business if you plan on holding it for the long haul.