While the theme is up by a solid 214% since the end of 2019, compared to a return of about 36% for the S&P 500, it has underperformed significantly this year declining by about 14% year to date, compared to the S&P 500 which is up by 17%. That being said, the recent correction should give investors a good entry point into this futuristic theme, which is likely to be key to decarbonizing energy-intensive heavy industries including shipping, and heavy industries such as steel and cement. Per a report from the World Energy Council, hydrogen could account for as much as 25% of final worldwide energy consumption by 2050. Now while the production of clean hydrogen still faces obstacles, particularly in terms of cost, governments are likely to increasingly incentivize the sector given the increasing urgency to address climate change.
Within our theme, Air Products and Chemicals APD +0.2% a company that sells gases and chemicals for industrial uses, has been the strongest performer, with its stock rising by about 6%. On the other side, FuelCell Energy FCEL -2.1% a company that designs and manufactures carbonate and solid oxide fuel cells has been the weakest performer with its stock down by 43% year-to-date. See our theme on Hydrogen Economy Stocks for a complete list of stocks in the theme.
[6/15/2021] Does The Recent Correction, Regulatory Tailwinds Make Hydrogen Stocks A Buy?
While the theme is up by a solid 173% since the end of 2019, compared to a return of about 32% for the S&P 500, it has underperformed significantly this year declining by about 4% year to date, compared to the S&P 500 which is up by 14% this year. Does the recent underperformance give investors a good entry point into this futuristic theme? We think so, for a couple of reasons.
While traditional renewable energy sources such as solar and wind are being used in the electricity generation and transportation markets, hydrogen is likely to be crucial to helping decarbonize sectors including aviation, shipping, and heavy industries such as steel and cement. These industries aren’t well suited to shift to battery-based technologies given the cost and weight-related constraints and hydrogen could play a major role in these areas. Investment bank UBS has indicated that hydrogen could make up 10% of global energy consumption by 2050, with potential investments in the space rising to as much as $1 trillion. The sector is also likely to see increasing regulatory support. The Biden Administration has pledged to slash U.S. greenhouse gas emissions to half of their 2005 levels by 2030, causing increasing urgency to invest in such technologies. Moreover, with lawmakers drafting out the details of the U.S. infrastructure bill, it’s also likely that futuristic energy sectors such as renewables and hydrogen could get a boost.
Within our theme, Cummins – an industrial company best known for its engines and power generation products, and Air Products and Chemicals a company that sells gases and chemicals for industrial uses, have been the strongest performers, with their stocks rising by about 9% each. On the other side, First Solar FSLR +4.5% has been the weakest performer with its stock down by 21% year-to-date.