Is This The Best Way To Play The Fuel Cell Market?

The potential of the fuel cell industry is obvious, even in the face of the rapid growth of electric vehicles (EVs). EVs are the anti-oil crusader’s vehicles of choice, but they too have ecological problems, and the more extreme environmentalists are already on the attack, pointing out that powering cars with electricity achieves nothing if that electricity is generated by burning fossil fuels. So, a power unit that uses only a naturally occurring gas and whose main emission is water is appealing. Add in the fact that fuel cell technology, particularly hydrogen fuel cells, already has a pretty big foothold in some areas of the market, and, as I said, the potential of the industry is obvious.

The problem for investors is that although fuel cell stocks have been in the news a lot recently, the technology is not really new, with several companies dating back well over twenty years. Despite that though, the biggest problem potential investors in the industry still have is finding a company that fulfills the most fundamental role of a corporation…one that makes money. The three best known companies in the industry are Plug Power (PLUG), Fuel Cell Technologies (FCEL), and Ballard Power Systems (BLDP), and not one of them has had a profitable quarter as far back as I can remember. Companies can only keep posting losses for so long, so one like FCEL, which hasn’t ever recorded positive EPS dating back to 1999 is not an attractive proposition to me.

So,…

The potential of the fuel cell industry is obvious, even in the face of the rapid growth of electric vehicles (EVs). EVs are the anti-oil crusader’s vehicles of choice, but they too have ecological problems, and the more extreme environmentalists are already on the attack, pointing out that powering cars with electricity achieves nothing if that electricity is generated by burning fossil fuels. So, a power unit that uses only a naturally occurring gas and whose main emission is water is appealing. Add in the fact that fuel cell technology, particularly hydrogen fuel cells, already has a pretty big foothold in some areas of the market, and, as I said, the potential of the industry is obvious.

The problem for investors is that although fuel cell stocks have been in the news a lot recently, the technology is not really new, with several companies dating back well over twenty years. Despite that though, the biggest problem potential investors in the industry still have is finding a company that fulfills the most fundamental role of a corporation…one that makes money. The three best known companies in the industry are Plug Power (PLUG), Fuel Cell Technologies (FCEL), and Ballard Power Systems (BLDP), and not one of them has had a profitable quarter as far back as I can remember. Companies can only keep posting losses for so long, so one like FCEL, which hasn’t ever recorded positive EPS dating back to 1999 is not an attractive proposition to me.

So, I fall back on an old, tried, and tested approach.

I know I am repeating myself here, but when an emerging technology has enormous but as yet unfulfilled potential, I look for what I call a “picks and shovels” play. The name is based on the old investing adage that during the gold rushes of the 19th century, investing in the makers and suppliers of equipment, the picks and the shovels that every prospector needed, made far more sense than investing in individual prospectors. You might get lucky and find someone who hit gold, but it was more likely that they, and you, would go broke. The pick and shovel companies, on the other hand, made money no matter who struck it rich.

That brings us to Linde PLC (LIN).

First, let’s make it clear that LIN is not a pure play on fuel cells. They are an industrial gas and engineering company that is now headquartered in the UK They produce oxygen, nitrogen, helium, and all the other gases you have and have not heard of, but which have an industrial or commercial use. They are, however, a major builder, supplier, and operator of hydrogen refueling stations.

As such, they can benefit from growth in the industry. However, even if that growth takes time to really materialize, they can keep making money, and paying a dividend to boot! More importantly, though, whoever wins the next contract to make fuel cell power plants for forklifts, or bus or train systems, or whatever, there is a good chance that Linde will be supplying the fuel they need to operate.

If you believe that hydrogen fuel cells have a future but are put off by companies who have decades of unfulfilled promise and unprofitability in their history, a company like Linde may be the answer. They will benefit should the industry finally take off, but have other profitable revenue streams in the meantime, and you will get paid a dividend while you wait. To me, that beats buying stock in a company that has consistently lost money, no matter how much you might believe in its product or its mission.

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