Hydrogen fuel is sure to be a hot topic this year, and there’s 1 stock in the space that could see big gains.
With Democrats controlling the both houses of Congress and the presidency, green technologies are sure to get a lot of attention this year. And one corner of the sector is likely to have an especially big year.
Raymond James analyst Michael Glen said in a note this week that 2021 will be a “watershed moment in the history of the hydrogen economy,” adding that he expects an accelerating number of announcements by companies and countries of hydrogen technology and is ability to wean the world off greenhouse gas-producing fuels.
Hydrogen gas doesn’t emit greenhouse gases, making it a cleaner alternative, and can be either burned like natural gas or in a fuel cell powered vehicle. What’s more, when hydrogen gas is made using electricity generated from renewable sources like solar power, there are no carbon emissions from anywhere in the energy chain.
But the downside to hydrogen is that it is currently more expensive than fossil fuels. However, costs will fall, just as they have for solar and wind power, and global governments are becoming more and more interested in using hydrogen to help meet carbon-emission reduction goals.
“We actually see a complete dive down of hydrogen production cost,” said Haim Israel, global strategist and head of thematic investing at BofA Securities. Israel added that electrolyzer prices are down 50% from five years ago, while renewable energy costs have fallen 50% to 60%.
“We believe both of the will go down another 60% to 70% before the end of the decade,” Israel said. “In 50 years, I believe that hydrogen is going to be a very integral part of our life. If we are serious about decarbonization, we just have no choice by to have hydrogen in scale.”
According to Glen, the growing interest in hydrogen is likely to bring good news for one stock in particular: Ballard Power Systems (NASDAQ: BLDP).
Ballard shares have been on a wild run this year, and are already up nearly 48% so far this year, with the stock gaining nearly 23% over the last week following the company’s announcement that it has a new purchase order from Arcola Energy, a U.K.-based leader in hydrogen and fuel cell integration specializing in zero-emission solutions for heavy-duty vehicles and transport applications.
Arcola has ordered Ballard’s FCmove™-HD fuel cell modules to power a passenger train planned for demonstration during COP26, to be hosted by Glasgow in November 2021, with the project contributing to Scotland’s goal of achieving zero emissions by 2035.
“Ballard is delighted to work with Arcola and other consortium members on the development of Scotland’s first fuel cell-powered train,” Ballard Chief Commercial Officer Rob Campbell said in a statement. “This project is an example of the growing global interest in fuel cells for the Medium- and Heavy-Duty Motive market, including rail applications, where heavy payload, long range and rapid refueling are key customer requirements.”
And there could be even more good news coming down the pipeline for Ballard. The Raymond James analyst said in the note that Ballard’s largest shareholder, Hong Kong-listed Weichai Power, is raising $2 billion in cash for hydrogen projects.
“It is clear to us that fuel cells represent a core component of [Weichai’s] growth strategy over coming decades,” Glen wrote. “Investors do not fully appreciate Weichai Power’s position, market share, OEM relationships and overall scale in the largest market for commercial trucks [and] buses globally,” referring to original equipment manufacture (OEM) and the companies making heavy-duty trucks and buses in China.
With faster adoption of hydrogen technology in China, that should mean more sales for Weichai, which would benefit Ballard as a key Weichai supplier.
As a result, Glen upgraded Ballard shares to Strong Buy and boosted his price target on the stock from $28 to $40 – nearly 16% higher than the stock’s price as of this writing.
Glen isn’t the only one bullish on Ballard shares. More than 80% of analysts covering the stock rate it a Buy.