Putting the �Fuel� back in Fuel Cell Stocks
Four years earlier, profit-taking tripped these stocks.
Four years after testing the price stratosphere, the stocks of fuel cell makers are again attracting the attention of Wall Street analysts.
The reasons are easy to find -- ranging from more analysts looking for stocks to write about to such traditional factors as consolidation, sufficient cash on hand, increased government subsidies, relatively low stock prices, and investors� fears of being left behind the next stock price surge.
The industry, known for its hype during the tech stock boom of the late 1990s, is now talking about a fuel cell in every car, a fuel cell in every community and a fuel cell in every laptop and portable tool.
Calling fuel cells a breakthrough technology, James Throckmorton says �this scenario is at least feasible in the future.� He�s the managing director of Foster Bryan Ltd., an Atlanta-based research firm that started looking at fuel cells 18 months ago and now believes the industry�s �day will come, (but) not soon, though.�
The �not soon� is at least five years away, according to David Kurzman, an analyst who has covered fuel cells since the glory days. Noting he hasn�t published any recommendations since joining Needham & Co a few weeks ago, Kurzman declined to comment on specific issues.
Describing fuel cell shares as �hot, cold and hot again,� he cautioned that any successful stock needed four critical factors: a commercially available product, meaningful partners, and sufficient cash to realize its vision and a clear path to profitability within 12 months.
Finding this information will be hard, for the renewed heat has attracted a lot of wannabes -- a lot of companies that are related to fuel cells �because they tell people they�re related, �was the way one Canadian analyst put it.
Declining to be identified because he hasn�t published his recommendations, the analyst described fuel cells as an investment for those who believe a hydrogen economy will develop. �If you don�t believe, you shouldn�t invest,� he said, adding �If you do (believe), look for those (companies who are) truly involved.�
That search will be extensive. In 2003 alone over 100 entities -- companies, partnerships, associations, universities and governments -- had announcements they said were related to fuel cells, according to Energy
Info Source Inc�s Fuel Cell Yearbook -- 2003 Edition.
About 60 of these companies are publicly traded or at least partially owned by a company with a traded stock. They range from such giants as General Motors (NYSE: GM), which continues to test fuel cells in cars,
and DuPont (NYSE: DD), which wants to supply fuel cell components; to the relatively tiny like Energy Visions Inc (Other OTC: EGYV), a Richmond Hill, Ontario-based company that owns a controlling interest in a developer and maker of batteries with advanced technologies.
In between is the more typical fuel cell maker, Plug Power Inc (NASDAQ: PLUG) which went public in October 1999 at 15 and traded as high as 150 the following spring. Last March, after participating in the industry consolidation by acquiring H Power Corp, Plug Power traded near 5. Last month, the stock approached 11 before backing off.
The merger and a private stock placement added about $85 million to the value of Plug Power�s capitalization in 2003, when it moved to speed revenues by marketing components of its fuel cell system as well as the
entire system. The company was founded as a partnership between DTE Energy (NYSE: DTE), the parent of Detroit Edison which supplies electricity in southeastern Michigan, and Mechanical Technology Inc
(NASDAQ: MKTY), which is now focusing on the development of micro fuel cells. DTE still has a 19.4 percent stake while Mechanical Technology has reduced its interest to less than 10 percent. Other owners include
General Electric (NYSE: GE) with 7.8 percent, and Engelhard Corp (NYSE: EC) and First Albany Cos Inc (NASDAQ: FACT) with less than 5 percent each, according to Plug Power Chief Financial Officer Dave
Neumann. Despite the company�s improved capitalization, TD Securities� analyst Chris Kwan is recommending that investors reduce their holdings, explaining the shares are �expensive based on revenues.� He also has a
�reduce� rating on Ballard Power Systems Inc (NASDAQ: BLDP) due to competitive pressures which are expected to slow down revenues in 2004
Kwan said he likes Fuelcell Energy Inc (NASDAQ: FCEL) and Hydrogenics Corp (NASDAQ: HYGS) without offering any specifics. Another analyst looking at these stocks, Andrew Bradford of Raymond
James, rates Ballard at market perform and Hydrogenics as outperform.
The Winslow Green Growth Fund is now investing in energy technology via �players that are selling into the makers of fuel cells,� according to co-portfolio manager Matt Patsky. To date, the only such shares acquired are those of Quantum Fuel Systems Technologies Worldwide Inc (NASDAQ: QTWW), a maker of hydrogen fuel systems for fuel cells. These systems include hydrogen tanks, pressure regulators and associated hardware.
While the jury is still out on the timing of main stream fuel cell adoption, it is clear to many that the life-changing significance of the technology cannot be ignored. As the story plays out, there will be big winners and big losers, fortunes made and fortunes lost. Savvy investors should not overlook the sector.
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By Jim Brumm for StreetInsider.com. Mr. Brumm is a financial reporter
who has focused on energy equities for more than 3 decades.