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Fuel Cell Stocks Investment Outlook Is Improving

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Fuel Cell Stocks Investment Outlook Is Improving

Plug Power LogoFuel cell stocks are heating up and the fuel stocks investment outlook is improving.  These companies recently caught the attention of Wall Street when Plug Power Inc (NASDAQ:  PLUG) announced a major contract to supply Wal-Mart with 1,738 fuel cell powered industrial forklifts for use at Wal-Mart distribution facilities.  This is a big breakthrough for an industry that has waited many years to break into the mainstream and start selling their fuel cell products on a large scale.   While 2014 has had its share of hot stock sectors, fuel cell stocks are one of he hottest stock sectors, with many of the better known fuel cell stocks increasing by hundreds of percent since the beginning of the year already!

What Is a Fuel Cell?

Fuel Cell DiagramBefore delving into which fuel cell stocks are hot and which ones are good candidates for long-term investments, it is important to understand what a fuel cell is.  A fuel cell is a simple device that combines oxygen from air and hydrogen that is supplied from a storage container to produce water and electricity.  As long as there is a supply of oxygen and hydrogen flowing through a fuel cell, it will provide electricity and exhausts harmless water.  It is a clean and green technology since it does not exhaust pollutants.

Fuel cells are nothing new.  The technology behind fuel cells was actually invented in the 19th century and first started to be used in practical applications in the middle of the 20th century by the National Aeronautics and Space Administration (NASA), who used fuel cells to power space vehicles during the Apollo moon missions.

The problem that fuel cells have had for decades has been their high cost.  The technology is sound and is proven to deliver high amounts of energy when needed; however, the high cost of fuel cells has made them cost-prohibitive and out of the reach of many energy users.  What makes fuel cells expensive are costly materials used inside of the cells that facilitate the combination of oxygen and hydrogen to produce electricity.  The key to the success of fuel cell industry is finding ways to produce fuel cells that break the cost barrier and are competitively priced versus other energy technologies.

Understanding Why Fuel Cell Stocks Are Hot

The insatiable demand for energy has led to the development of fuel cells by a variety of small capitalization companies.  Commercialization progress has been slow in the fuel cell industry, with big dreams of providing a clean power source tempered by high costs and low market acceptance of the technology.

While fuel cell stocks were slowly gaining during the first two months of 2014, as investors looked for the next hot technology sector and started to realize that more widespread use of fuel cells is on the horizon, fuel cell stocks really took off in early March 2014 with the announcement that Wal-Mart had placed a large order with Plug Power Inc (NASDAQ:  PLUG) for fuel cell powered industrial forklifts.  Plug Power made a sharp move higher after the announcement, gaining over 130% in the week after the announcement.  Other companies in the fuel cell sector also saw their stocks make significant moves higher after the Wal-Mart deal was announced, with Ballard Power Systems (NASDAQ: BLDP) gaining over 118% and FuelCell Energy Inc (NASDAQ:  FCEL) move up more than 100%.

The focus of the new generation of fuel cell companies is finding cheaper materials and manufacturing methods, so that the cost of fuel cell costs come down to a point at which they are commercially viable and cost-competitive with other sources of power.  What makes this enticing for investors is that once fuel cells are commercially viable, the revenue and profit potential for the small capitalization fuel cell stocks is tremendous due to the enormous need for energy, as are the potential gains in the share prices.
Fuel Cell Electricity
One important thing for investors to keep in mind is that fuel cells are not only being developed and used for vehicles, such as automobiles and fork lifts, they are also being developed and used for providing electricity for buildings.  Due to their high costs, fuel cells have primarily been used to provide electricity for large government and corporate buildings.  However, there is a cottage industry of companies that are trying to bring fuel cell technology to homeowners and small businesses, so people can produce their own electricity on-site for their homes or small businesses and end their reliance on power utilities.

While not publicly traded, Bloom Energy and ClearEdge Power are two of the companies at the forefront of the small-scale fuel cell electricity generation push, and are worth keeping track of for future developments, including possible initial public offerings (IPOs) of their private stocks.  Fuel cells used on-site for electricity production are known as stationary fuel cells.  A research outfit known as Navigant Research predicts that revenue from stationary fuel cell sales throughout the world will increase from $1.4 billion in 2013 to $40.0 billion in 2022.  With numbers like these, it is easy to understand why many investors are excited about investing in fuel cell stocks.

Reasons To Be Cautious About Fuel Cell Stocks

There are a number of reasons to be cautious about fuel cell companies and fuel cell stocks.  First off, they have made extraordinary moves higher on not so compelling news.  Secondly, they have a long history of reporting net operating losses, due to the slow acceptance of their products by the marketplace.  Thirdly, they face ample competition form other alternative energy companies, including electric automobile makers, such as Tesla Motors (NASDAQ:  TSLA), that are trying to replace the internal combustion engine with clean and green power technologies, and solar lease companies, such as SolarCity Corporation (NASDAQ:  SCTY), that are aiming to bring cheap solar energy to millions of small business and homeowners.  Investors need to take a cautious approach to fuel cell stocks commit to investing in them for a long period of time to allow for their fuel cell products to attain marketplace acceptance and for their revenues to grow to a point that they are profitable, which could still be years off, despite the recent breakthrough with Wal-Mart.

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