Since hydrogen is the most abundant element in the universe, one wouldn’t normally expect it to be worth too much. From an economic point of view 101 applies: the more supply, the lower the demand. However, hydrogen fuel cells are a different matter, as shown by FuelCell Energy (NASDAQ:FCEL). After an incredibly strong November, FCEL shares were reloaded and made an amazing start to 2021.
Source: Kaca Skokanova / shutterstock
In fact, stocks are up more than 44% since the start of the year. There is no guarantee that FCEL stock will maintain this incredible momentum. However, with all eyes on alternative energies – be it electric vehicle transportation or renewable infrastructures like wind and sun – FuelCell and related names are enjoying a rising tide.
This is most likely the explanation for the recent rally in FCEL stock. Just a few days ago a South Korean conglomerate SK Group announced a joint venture with Plug in the power supply (NASDAQ:PLUG) to support the expansion of hydrogen energy in Asia. SK will invest $ 1.5 billion in the project.
Although not directly affiliated with the company, FCEL shares are and Bloom Energy (NYSE:BE) Stocks got higher on the news. In the present context, that alone shouldn’t stop you from speculating about FuelCell. With President-elect Joe Biden keen to achieve his long-term net-zero emissions goals and surprise Democratic runoff victories in Georgia, the new administration should face fewer bureaucratic obstacles.
Of course, this has apparently been a powerful catalyst for most stocks. Yes, there is an argument that many of Biden’s policies – including the controversial “wealth tax” – may not be conducive to free market capitalism. However, we are in a severe economic crisis due to the novel coronavirus pandemic. Hence the logic here is that our country needs decisive, largely unqualified leadership.
But can this narrative continue to support FuelCell stock’s dramatic move higher?
Why taking profit on FCEL stocks isn’t a bad idea
On the one hand, investors have several reasons to support FCEL stock, despite the fact that it is reaching incredible plateaus so quickly. In addition to the Biden push, society has long been pushing for environmentally friendly solutions. And hydrogen fuel cells could play a crucial role in these next-generation infrastructures.
One of the convincing companies under the FuelCell brand is energy storage, which “can store excess electricity that is generated by intermittent technologies when their output exceeds the requirements of the power grid”. According to the Fuel Cell & Hydrogen Energy Association, this excess power is used in electrolysis, which is where hydrogen is extracted. From there, the hydrogen can be used for a myriad of applications, including stationary fuel cells.
Now it is true that battery storage systems are used to store additional energy from renewable sources. However, batteries are prone to storage degradation. In contrast, hydrogen fuel can be stored for long periods of time and on a large scale (limited only to the size of the plant). This makes FCEL stock incredibly relevant to the renewable energy boost.
However, numerous academic sources have found that hydrogen has long been suggested as an energy alternative. That it didn’t work out is proof that the platform’s cost and efficiency issues have so far prevented its economic viability.
And that could be the biggest distraction for FCEL stock. The main thing is timing. Compared to last year, the last time FuelCell stock saw this dynamic was the tech bubble of the 2000s.
Of course this time could be different. Triple-digit returns don’t last indefinitely, not for alternative energy games, not for anything. That doesn’t mean that I think less about FCEL. It’s just the reality of the market.
If the business were really profitable, you wouldn’t expect such a long, uninterrupted period of money loss either. At some point, investors could get off their euphoria and look at the financials.
Can a Big Government Really Trigger a Green New Deal?
According to the Institute for Energy Research (IER), the thrust for renewable energies has an unjustifiably large hype. One of the counter arguments for the green future is that the infrastructure for the construction of wind and solar systems requires raw materials that would oblige us to China.
In other words, true energy independence is a myth. In terms of addiction, we have to choose our poison: the Middle East or China.
It should be noted that many view the IER as a front for the fossil fuel industry. I think that’s a fair review. But the institute also sums up an inevitable reality: in order to go green, a big government must get involved (i.e. the Green New Deal). But is that a realistic suggestion?
Remember, the academic literature has seriously questioned the effectiveness of President Franklin Roosevelt’s New Deal. Some evidence suggests that the unprecedented wave of government programs has hurt low- to middle-income households, the very people who should be supporting these programs!
It won’t surprise me in the slightest if the Green New Deal does more harm than good to the environment (and the economy). This does not raise thoughts about the science of renewable energy, but about a big government.
In other words, I don’t see enough evidence to support FCEL stock with its increased premium, whether due to external factors or internal substances. So if you’ve made significant gains from the recent rally, it’s probably time to take some off the table.
At the time of this writing, Josh Enomoto held positions (neither directly nor indirectly) in the securities identified in this article.
Josh Enomoto, former senior business analyst at Sony Electronics, has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has provided unique, critical insights for the investment markets as well as various other industries including law, construction management and healthcare.