Stalking fuel-cell stocks: will the high profits return?

A mere four years ago, fuel-cell stocks were the toast of NASDAQ, with millions of individual and institutional investors driving share prices through the roof. Environmentalists and financial analysts were for once in agreement: pollution-free fuel cells powered by universally available hydrogen were poised to dominate the energy sector in the face of dwindling oil reserves around the world. Well-heeled upstarts like Ballard Power and Fuel-Cell Energy were poised to usher in the new energy revolution, and investors bought up shares accordingly.

But cut to the present and Ballard's stock is down from an all-time high of $140 per share in 2001 to just $6 and change these days. Investors, said Ballard President Dennis Campbell, have been "discouraged by the long wait" and "seduced by the lure of an easier solution to the energy and environmental challenges that we face."

Meanwhile, FuelCell Energy's stock has lost 80 percent of its value in the same time period. Investors who poured money into these companies on the heels of the dot-com crash hoped they would take profits to the bank in short order. But with major automakers and power producers reticent about implementing fuel-cell technology for mass consumption without reliable and convenient methods of hydrogen refueling and generation available, the revolution is taking much longer to materialize than anyone predicted. And many frustrated fuel-cell investors looking for quick profits have bailed as a result, leading to the sector's collective NASDAQ plunge.

Competing Renewables

Meanwhile, the increasing development of wind and solar power is giving fuel cells a run in the race to dominate the burgeoning alternative-energy sector. "The challenge is that most of the technologies are still emerging, and it's unclear which of several competing technologies--fuel cells, solar, biomass--are going to win" says green business pundit Joel Makower, who researches clean energy technology through his firm Clean Edge. "In addition, these companies' stocks are subject to the vagaries of global politics, federal funding, oil prices and all of the usual stuff that jiggles stocks."

Rona Fried, president of SustainableBusiness.com, the leading web portal for green business information and networking, agrees with Makower's assessment. "Fuel-cell stocks are very speculative," she says. "Investors should know they are making a bet when they buy into them. The people I know putting money into these stocks are buying only very tiny amounts."

Meanwhile, some bold individual investors are unfazed by the risks of getting into fuel cells now. Charles Kirk, author of the popular financial weblog known as the Kirk Report, points out, "Many times the best time to buy these stocks for long-term holdings is after Wall Street finally grows tired of them and throws in the proverbial towel." Kirk adds, "The fact that everyone now hates [Ballard Power stock] and clearly has doubt regarding its future has finally made me interested in buying it."

Follow the Money

One way investors can get in on the game cheap but still hedge their bets is by piggybacking on the investment decisions of larger traditional companies. For instance, Ford and Daimler-Chrysler together own more than a third of Ballard Power (19 percent and 17 percent respectively), which practically ensures that Ballard's products will find their way into new cars at some point in the future. Also, rumors abound that the automakers want to take over Ballard outright, which would be a boon to investors who get in before any such mergers happen.

Another solid indicator of long-term success is the existence of real revenues today. Ballard brought in more than $89 million last year primarily through the licensing of its vehicular and portable fuel cells, while stationary fuel-cell maker FuelCell Energy topped $30 million in revenues through its operation of 23 power plants throughout the United States, Europe and Japan. Many of the analysts who now view Ballard as yesterday's news are still bullish on FuelCell Energy's business model and operational expertise.

Perhaps the moral of the story is that green investors looking to cash in over the long haul might want to consider buying some of the more respected fuel-cell stocks now, as their share prices are at historic lows vet their prospects remain solid. While fuel cells will no doubt be challenged as the dominant alternative energy technology, their widespread application and low environmental and economic cost may well make them a key player in the future energy spectrum, if only investors can wait that long. CONTACT: CleanEdge, www.cleanedge.com; SustainableBusiness.com, www.sustainablebusiness.com; The Kirk Report, www.thekirkreport.com.

RODDY SCHEER hopes the future includes fuel cells.