The Inflation Reduction Act (IRA) passed by the Biden Administration in 2022 provides both tax incentives and subsidies to clean energy projects. Given the encompassing nature of the IRA, those subsidies would also be given to hydrogen projects, initially prompting some investors to give hydrogen stocks another look. However, thus far in 2023, even up-and-coming hydrogen stocks have largely underperformed the market. When global energy prices remain slightly elevated, it is difficult for hydrogen energy to compete when it is already more expensive than even some renewable energy alternatives. Nonetheless, hydrogen energy will eventually carve out its own space within the world’s energy grid, and investors should take notice now while prices are relatively low.
Bloom Energy (BE)
Bloom Energy (NYSE:BE) is a pure-play innovator in the hydrogen industry, specializing in solid oxide fuel cell (SOFC) technology, which can generate electricity from various fuels, including natural gas, biogas and hydrogen. The “Bloom Energy Server” produces electricity through an electrochemical process that reduces the need for combustion and thereby reduces emissions. Unlike some hydrogen power sources, Bloom’s Energy Server can provide reliable, 24/7 power, making them an attractive option for businesses and institutions that require constant power supply. The server also operates independently of the grid. This can be a crucial advantage during power outages or in areas with unstable grid infrastructure.
Though Bloom Energy has maintained double digit top-line growth in the last few years, its share value has continued to suffer, and the reasons are perhaps two-fold. Investors may be concerned about Bloom Energy’s lack of operational efficiency: the hydrogen producer generates negative operating profit. Another reason could be due to hydrogen energy still being less cost effective than other sources of energy, including solar panels. However, in July, Bloom Energy announced the launch of the Series 10, 10 MW fuel cell offering, which could significantly improve the company’s product portfolio. The stock trading at a low point coupled with Bloom Energy’s continued innovation should keep some investors interested.
Cummins (CMI)
Cummins (NYSE:CMI) is a global leader in power solutions, offering engines, generators, components and services for various end-markets, such as transportation, industrial, marine and mining. The company has also been investing heavily in hydrogen fuel cell technology, aiming to become a dominant player in the emerging hydrogen economy.
Cummins has made a number of strategic acquisitions and partnerships to gain market share in the hydrogen space. In late 2019, the company acquired Hydrogenics and, the following year, Cummins formed a joint venture with NPROXX to develop hydrogen storage systems. Cummins has also formed strategic partnerships with other players in the industry to develop fuel cell products, such as Air Products (NYSE:APD) and Hyundai Motor (OTCMKTS:HYMTF). These decisions have enabled Cummins to offer a comprehensive portfolio of hydrogen solutions, including electrolyzers, fuel cells, storage tanks, dispensers and refueling stations.
Cummins has been delivering solid financial results since the Covid-19 pandemic with revenues growing consistently in the double digits and net margins in the high single digits. Cummins’ stock has only risen by about 11.4% in the past 12 months, indicating investors could benefit from a long-term hold as the company continues its expansion into the hydrogen space.
DuPont de Nemours (DD)
DuPont de Nemours (NYSE:DD) is a diversified chemical company that produces high-performance materials and solutions for various industries, such as electronics, transportation, construction, health care and agriculture. The company happens to also have a significant presence in the hydrogen market through its membrane technology business. DuPont’s membranes are used in both electrolyzers and fuel cells to separate hydrogen from other gasses or liquids. The company claims that its membranes are more durable, efficient and cost-effective than conventional ones.
DuPont has been recovering from the negative impact of the Covid-19 pandemic on its business. Though revenue growth has been uneven, net income margins have remained elevated. In 2022, DuPont generated $13.0 billion in revenue and $5.9 billion in net income, representing a hefty 45% net income margin. If DuPont is able to continue generating such large sums of net income, it is quite possible the company could return more some of that to shareholders in the form of dividends while also earmarking future investments into hydrogen-powered energy systems. Investors should watch closely on what DuPont does next.
On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
