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Summary

  • Fuel cells are a real business early in its evolution.
  • These early leaders are highly speculative.
  • Someone is going to win, and investors will want to wait to see who does.

Back in 2010 companies like First Solar FSLR were very hot stocks.

First Solar makes solar panels. Back in 2010 a whole bunch of other U.S. companies, like the ill-fated Solyndra, made solar panels. These stocks were very hot for a while. Then China entered the market, in a very big way, and most of them disappeared.

But the survivors, today, are solid investments. First Solar, along with SunPower SPWR and SolarCity SCTY, the latter of which is in the business of selling solar systems, are making good money, and solar now represents a solid and growing factor in the U.S. electric grid.

Solar critics make a good point, however. The Sun does not shine at night. Solar power is intermittent, and output varies based on its own schedule, not demand.

The solution is storage. The Department of Energy, through the Federal Energy Regulatory Commission (FERC) has put a solid business model in place, aiming not just to embrace more renewable grid energy but to cut the number of brown-outs and black-outs which cost $79 billion in a $250 billion market.

Batteries are one way to meet the need. Most data centers have extensive battery back-up, to prevent blackouts and assure high-quality power that doesn't vary. But another way forward is with fuel cells, which combine oxygen with hydrogen to produce energy and water.

The result is two hot momentum stocks for 2014, Plug Power PLUG and FuelCell Energy FCEL. Since January FuelCell is up almost 152% while Plug Power is up a whopping 419%.

Such gains are fairly easy when you start at penny stock prices. Even today, neither of these companies are worth $1 billion.

Would I put money into either? I might, if I were a speculator, a momentum player, or a trader. Right now all these folks are having a field day with these companies, whipsawing them between elation and depression on the thin reeds of analyst reports.

What does it take to sustain current multiples? Hope floats any stock.

There is hope that FuelCell can compete directly with grid power, by using biogas or natural gas as a feedstock. Making your own electricity from $5/mcf natural gas turns out to be cheaper than taking it off a grid that still leaks like a sieve.

There is hope that Plug Power can scale the use of its energy down, running forklifts and other industrial equipment, and save a lot of money for a lot of logistics outfits.

The hope is legitimate. The technology works. But if you're an investor, I'm saying stay away from these stocks right now.

At some point, both will hit a brick wall and fall back. It will appear, for a time, fuel cell technology is a bad bet. Either China will get into the market with cheaper equipment (as it did with solar), or battery prices will plunge, or natural gas prices will surge. The speculators will find some other pretty bauble, some new story, and one or both of these companies could collapse completely under the weight of their own hubris.

From that bust some real investments will grow. Fuel Cell or Plug Power could be the next First Solar. But we don't know that until they're tested by hard reality.

So plunge away. If you have the stomach to devote your full time to either of these companies, or both, and if you know that getting out with your profit is more important than any paper profit, you can make money here.

But if you're an investor, stay away. Let this sector settle out. And then buy, buy the winners. Because renewable energy is transforming the world in this decade. Energy is the big economic story of our time, and the growth of renewable energy is a big part of that.

Source: What Plug Power, FuelCell Mean