Hydrogen Hype: 3 Value Stock Picks in the Trillion-Dollar Market

Stocks to buy

The world economy is transitioning to a renewable energy narrative. This makes the demand for sustainable solutions and further emphasizes the potential of hydrogen as an alternative fuel source. While the market may be experiencing issues in scalability and cost, it’s still eclipsed by the industry’s massive potential. Consequently, investors buying hydrogen value stock picks may soon experience a growth spurt of the decade.

To come up with the list of companies for this article, I’ve reviewed the forward price-to-earning (P/E) ratios of companies with hydrogen offerings. I then compared them to the sector average, and chose the cheapest ones. Just in case, I also reviewed the financials and industry presence to develop a shortlist of the top prospects. So, here are my top three hydrogen value stock picks. 

AES Corporation (AES) 

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AES Corporation (NYSE:AES) is a power utility company that generates and transmits electricity to its customers. It has operations in four primary segments:

  • Utilities: Operates regulated utilities and their generation facilities in Ohio, Indiana, and El Salvador.
  • Renewables: Solar, hydro, wind, biomass, and energy storage facilities. 
  • New Energy Technologies: Comprised of its green hydrogen initiatives and other new technology businesses.
  • Energy Infrastructure: Natural gas, coal, diesel, and oil generation facilities.

AES’s operations comprise a portfolio of generation facilities totaling 34.5 gigawatts, including its integrated utility in AES Indiana. In 2023, it completed 3.5 GW of renewable projects, doubling its capacity from the previous year. 

In addition, AES Corporation signed contracts for 5.6 GW of renewables, which doubled its renewable pipeline compared to the previous year. The company also secured $1.1 billion in asset sales.

With a forward PE ratio of 9.58, AES is cheaper than its parent sector’s forward PE of 15.97. As for financial metrics, FY’23’s revenue fell flat YOY. However, the company reached profitability after two consecutive years of losses. They reported a diluted EPS of $0.35 from an 82-cent loss the year earlier. 

AES remains optimistic, forecasting an additional 3.6 GW worth of new projects in 2024 and initiating guidance for adjusted EPS of $1.87 to $1.97, alongside adjusted EBITDA of $2.6 to $2.9 billion for 2024. 

A backlog of signed contracts standing at 12.3 GW and a strong outlook for growth make AES stock an excellent value in the hydrogen world. 

Exxon Mobil Corporation (XOM)

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I wouldn’t blame you if you thought Exxon Mobil Corporation (NYSE:XOM) was a one-trick pony. However, a closer look at its various businesses would lead you to understand that investing in Exxon means being exposed to various industries – including the hydrogen market. These industries include low-carbon solutions, lower-emission fuels, and low-carbon solutions for hydrogen. 

Exxon is trading close to its industry forward PE at 13.63, yet Exxon has a lot going on under the hood that excites me for its prospects as one of the hydrogen value stocks. 

For example, Exxon’s works with Zeeco and has the potential to provide industrial burners that can be fully operated with hydrogen and significantly reduce emissions. 

Further, Exxon Mobil recently partnered with JERA to develop and scale its low-carbon hydrogen project.

And, with the launch of Mobil Lithium, Exxon’s also eyeing a spot in the lithium market, indicating the company’s solid trajectory toward green energy production. 

On the other hand, FY’23’s numbers were a bit blasé. Both the top and bottom lines decreased by more than 30% YOY. Accelerated spending due to new businesses like Mobil Lithium and low-carbon hydrogen also affected its bottom line. 

Still, we can’t ignore that Exxon Mobil is a huge player with a stable business model. The company has enough resources to support the growth of its new hydrogen and lithium projects, so we might see an improvement further down the line. 

Additionally, the XOM stock comes with an aproximate 3.1% annual dividend yield, making it an attractive long-term value pick. 

Air Products and Chemicals (APD)

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Air Products and Chemicals (NYSE:APD) specializes in conceptualizing and building equipment for various chemical processes, such as natural gas liquefaction and air separation, as well as the transport and storage of various types of gases. 

The company has a strong presence and leadership in the sector and has recently reached its milestone of having 2000 seagoing vessels worldwide that harness membrane-based nitrogen generation systems. Air Products and Chemicals is building Europe’s largest hydrogen plant, which is expected to be on-stream by 2026 and will serve Exxon Mobil’s Rotterdam refinery.

Currently trading at a 22.87 forward PE, APD stock still trades a little above its sector average. That said, the company also reported positive financials despite, as CEO, Chairman, and President Seifi Ghasemi put it, “significant geopolitical and economic headwinds.” 

While Q1’24 did report a 3% drop in total sales from the same period last year, this was offset by a 6% increase in GAAP EPS. Adjusted EBITDA also rose 7%. Infact, the company expects 2024 adjusted EPS to increase 6-9% from 2023.

And for a little more icing on the cake, I think that APD stock is one of the more attractive hydrogen value picks with its 2.95% dividend yield and 42 consecutive years of dividend increases. 

On the date of publication, Rick Orford did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Rick Orford is a Wall Street Journal best-selling author, investor, influencer, and mentor. His work has appeared in the most authoritative publications, including Good Morning America, Washington Post, Yahoo Finance, MSN, Business Insider, NBC, FOX, CBS, and ABC News.

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