Investing in Hydrogen Stocks
Those willing to ride the waves of hydrogen-linked stocks can find opportunity in some of the leading industrial gas and hydrogen companies.
Without making a judgment on present valuation, Cheng says there are a few ways to approach hydrogen investing. For one, you could invest in companies in the industrial gas business, which are well-positioned to benefit from hydrogen distribution and end-market use. Global leaders in this area include Dividend Aristocrats Linde (LIN, $291.41) and Air Products (APD, $243.13), as well as Air Liquide (AIQUY, $27.47), he says.
Renewable energy utility stocks can also provide indirect exposure to hydrogen investing. Cheng points to Orsted (DNNGY, $34.79) and NextEra Energy (NEE, $76.00) as two potential options in this area.
Another approach is to invest in a pure-play company such as Plug Power (PLUG, $16.35), which is a U.S.-based green hydrogen and fuel cell solution provider. Plug Power is an interesting holding for the long run "as it has an integrated business model from generation to distribution to end-market applications, with broad business opportunities from transportation, industry and power generation," Cheng says.
Hydrogen energy is in its infancy, however, which can make picking individual winners difficult, says Peter Krull, CEO of investment firm Earth Equity Advisors. Because of this, he prefers to use exchange-traded funds (ETFs) – which can hold dozens or hundreds of hydrogen stocks – such as the Defiance Next Gen H2 ETF (HDRO, $11.13).
HDRO tracks the BlueStar Hydrogen & NextGen Fuel Cell Index, which includes companies engaged in hydrogen-based energy development and fuel cell technologies around the globe. Top holdings include California-based Bloom Energy (BE), Oslo-based Nel (NLLSF) and the aforementioned Plug Power.
"(HDRO) is global in scope which gives investors access to both domestic and international companies," Krull says. "Right now, the market in Europe looks to be moving faster than here in the U.S., so having that global exposure could be an advantage."
Be aware, however, that HDRO debuted just last year and is still a smaller ETF, with only $42 million in assets and an average daily trading volume of around 58,000 shares. So while it will provide lower risk compared to buying individual hydrogen stocks, it's not a terribly liquid fund; depending on when you sell, it might be difficult to get the exact price you're trying to sell at. Thus, HDRO should primarily be considered for buy-and-hold purposes.