Forget fuel cell stocks: here are 3 best clean energy games to buy
It seems like every week there’s a new hot trend in the stock market, and during Thanksgiving week it was hydrogen. While many Americans were excited about pumpkin pie and stuffing, investors were bidding on hydrogen fuel cell stocks like Bloom Energy ( TO BE 1.62% ) and Plug hole ( CONNECT -1.74% ).
But hydrogen stocks are risky, especially at these prices. With that in mind, we asked three of our Motley Fool contributors which alternative fuel stocks they preferred. They came back with Clean energy fuels ( CLNE 2.20% ), Atmospheric and chemical products (ODA -2.44% )and Emerson Electric ( EMR -3.67% ). Here’s why they think they’re better bets for your money.
This natural gas game does the housework
John Bromels (clean energy fuels): A big debate about hydrogen is whether it is, in fact, a “clean” energy solution. Yes, hydrogen itself, when burned, does not release carbon dioxide. But in the United States, most hydrogen comes from natural gas, a fossil fuel. while you can extracting hydrogen by other means — seawater, for example — is much less economical.
Clean energy fuels, on the other hand, are all about economy. The company started with a mission to promote natural gas-based truck fuel, which burns cleaner than traditional diesel or gasoline and, thanks to the abundance of natural gas, also tends to be cheaper. . This was good news for companies with large truck fleets that wanted to be more environmentally friendly without breaking the bank.
Today, Clean Energy has gone a step further with the introduction of Redeem, a renewable natural gas fuel. Instead of using traditional natural gas to make Redeem, Clean Energy uses methane collected from dairies, farms, landfills and wastewater treatment plants. It transforms this biogas into usable fuel which, when burned in a truck’s engine, has less impact on the environment than the methane from which it was made.
In its latest earnings call, Clean Energy CEO Andrew Littlefair revealed that Redeem now represents more than 60% of Clean Energy’s overall energy mix, and the company hopes to transition to 100% Redeem by 2025. to hydrogen, which has not yet proven it can be competitive when it comes from renewable sources, Clean Energy has already signed big contracts with companies like UPS to provide sustainable fuel for trucks. Clean energy looks like a purchase.
Have a gas with one of the big bosses in hydrogen
Scott Levine (Aviation Products and Chemicals): Fuel cell stocks have soared in the past two months, thanks to Bloom Energy’s entry into the commercial hydrogen market and fellow hydrogen specialist Plug Power expanding further. in the stationary energy market.
But one of the problems with fuel cell stocks like Plug Power and Bloom Energy is that – although they have seen remarkable revenue growth – they have still failed to prove that their efforts could generate profits. This does not mean, however, that everyone hopes to hitch your wagon to a profitable hydrogen-based business is lost.
While investors will find that fuel cell stocks have bottom lines that are consistently shaded red, Air Products is generating strong profits. Over the past 10 years, Air Products has generated an average annual EPS of $6.60.
Trading in a variety of industrial gases, Air Products is far from a pure hydrogen player, but the company recognizes the substantial opportunity in the burgeoning hydrogen economy. Last April, for example, Air Products spent $530 million, acquiring five operating hydrogen plants from PBF Energy. But that has nothing to do with his July trade.
By forming a joint venture with ACWA Power and NEOM, Air Products will work to develop a $5 billion facility that will produce ammonia from wind and solar power. Air Products will then commit an additional $2 billion to develop ammonia-to-hydrogen infrastructure. Located in Saudi Arabia and scheduled to start operations in 2025, the joint venture project is expected to supply 650 tons of hydrogen per day for transportation applications worldwide.
Addressing the joint venture and the company’s leadership position in hydrogen, Seifi Ghasemi, the company’s President and CEO, said on the company’s third quarter conference call: “This project is truly a game-changer for the carbon-free hydrogen market, which, as we have always said, we expect significant growth over the next decade and position Air Products to continue to be the leader in the field of hydrogen.
I have carved out a nice niche in my portfolio for riskier stocks, and I am convinced that hydrogen will become increasingly popular in terms of energy solutions. But the risks associated with fuel cell stocks are too great for my taste. Air Products seems like a much more reasonable approach.
Emerson Electric is also into alternative fuels
Lee Samaha (Emerson Electric): Emerson Electric generated 58% of its segment profits from its automation solutions segment in its fiscal year 2020. And given the process automation industry’s heavy exposure to the oil and gas company, it’s no surprise that the company is often seen as a game on the traditional energy industry.
Indeed, during the company’s recent earnings call, CEO David Farr revealed that oil and gas were responsible for 24% of Emerson’s sales in 2020. As such, Emerson will still be considered highly exposed. to oil and gas. But here’s the thing: the market may well be underestimating its growing exposure to alternative fuels.
In fact, Emerson Automation Solutions Executive Chairman Lal Karsanbhai said Emerson’s clean fuels and renewable energy business grew 10% in 2020. Farr also pointed out that Emerson has invested and would continue to invest in companies to take advantage of the transition from oil and gas to alternative energy. sources. In the meantime, management intends to continue generating profits and cash flow from oil and gas.
As such, the best way to think about the company is to recognize its current exposure to traditional energy sources, but also its ability to transition to new sources of revenue. Simply put, Emerson can use cash flow from oil and gas revenue streams to invest in and grow its alternative fuels solutions that play in industries such as biofuels, biomethane and clean hydrogen.
Trading at less than 20 times current free cash flow and sporting a 2.5% dividend yield, Emerson Electric continues to look like good value for investors.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.