Will Hydrogen Stocks Continue To Outperform?

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Our theme of Hydrogen Economy Stocks, which includes the stocks of U.S. listed companies that sell hydrogen fuel cells, related renewable energy equipment, and supply hydrogen gas, has risen by 5% year-to-date in 2023, outperforming the S&P 500 which remains down by -2% over the same period.

Hydrogen and renewable stocks have fared well over the last year driven by a mix of favorable regulations, including the passage of the Inflation Reduction Act in the U.S., and an increasing urgency to reduce the dependency on fossil fuels given the increase in oil prices following Russia’s invasion of Ukraine. Moreover, earnings from many players in the space have been relatively strong in recent quarters. For example, Bloom Energy saw revenues over the most recent quarter jump by 35% year-over-year to $462.6 million, beating estimates. FuelCell’s results also beat estimates, with revenue growing by about 16.6% year-over-year over Q1 FY’24 with its losses also narrowing. There are some other macro factors that could help the renewables theme. Inflation has been cooling, and the Federal Reserve has scaled back on the pace of its interest rate hikes. The most recent hike stood at 0.25%, down from multiple rate hikes of 0.75% last year.

So, what’s the outlook like for the theme? Although hydrogen is unlikely to be as big as other renewable energy sources such as solar and wind, it could be crucial in decarbonizing the industrial sector and heavy vehicles. It could also be seen as a medium of storage of renewable electricity. While mostly external factors drove the movement of the theme in 2022, investors will need to watch for underlying improvements in hydrogen technology, which still remains somewhat relatively expensive and small-scale.  First Solar (NASDAQ:FSLR) has been the best-performing stock in our theme rising by nearly 40% year-to-date.  On the other side, Air Products & Chemicals (NYSE:APD), a company whose primary business is selling gases and chemicals for industrial uses, has been the worst performer with its stock down by roughly 7% year-to-date.

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What if you’re looking for a more balanced portfolio instead? Our high-quality portfolio and multi-strategy portfolio have beaten the market consistently since the end of 2016.

 Returns Mar 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 FSLR Return 23% 38% 546%
 S&P 500 Return -1% 2% 75%
 Trefis Multi-Strategy Portfolio -3% 4% 227%

[1] Month-to-date and year-to-date as of 3/15/2023
[2] Cumulative total returns since the end of 2016

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