I bought a position in hydrogen producer Plug Power Inc. (PLUG-Q) near the US$16 level and, with the stock now under US$12, things are not going well. An in-depth Citi report this week called “A Reality Check on the Hydrogen Craze” was thus conveniently timed.
The bull case for hydrogen production appears largely intact. Report authors Maggie Xueting Lin and Edward Morse noted that a significant portion of the US$1.7-trillion in renewable power subsidies from the Inflation Reduction Act are pointed towards hydrogen production. These funds are designed to create a national system of hubs across the country.
The scale of the U.S. subsidies for hydrogen production are exorbitant. The report argues that “the tax credits provided by the Inflation Reduction Act are so generous that net production costs of green hydrogen after adjusting for tax benefits could be negative later this decade.”
Globally, research firm BloombergNEF estimates that funding for hydrogen projects to 2030 will amount to US$146-billion, a 46 per cent increase from its January 2022 forecast. The European Union has quadrupled its target for renewable hydrogen supply.
Ms. Lin and Mr. Morse admit that ‘great uncertainties’ surround the proliferation of hydrogen power despite these positives. The unsubsidized production costs remain high. Storage and transportation issues abound. It’s possible that the decarbonization process will sidestep hydrogen entirely by 2050.
No investor likes selling stocks below book value but I will dispense with Plug Power and take the loss if necessary. In the short term, U.S. subsidies should limit the damage but the company is beginning to look like an all or nothing proposition and I’m not a big fan of that type of speculation. The more time goes on, the more critically I will examine the stock.
-- Scott Barlow, Globe and Mail market strategist
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Stocks to ponder
TC Energy Corp. (TRP-T) This has been one frustrating stock for investors: It has slumped more than 30 per cent over the past 14 months amid concerns about high debt levels, asset sales and now the uncertainties surrounding a coming spinoff of its oil pipelines. But David Berman says the argument for sticking around is compelling. The worst may be over for the Calgary-based energy infrastructure company, giving investors a dividend yield that has been hovering around 8 per cent this week, after a couple of tough years.
MTY Food Group (MTY-T) The company has expanded from its roots as a Canadian food-court operator to a global franchiser with a diversified portfolio of fast-food and casual-dining restaurants. MTY has more than 7,100 locations with approximately 90 brands including Mr. Sub, Thai Express, Manchu Wok, Baton Rouge, South Street Burger, Toujours Mikes and Papa Murphy’s. Meanwhile, the stock has delivered strong gains to long-term investors with MTY’s share price closing at a record high in February driven by its robust earnings growth. Jennifer Dowty speaks with MTY chief executive officer Eric Lefebvre on the company’s growth opportunities and challenges.
Tupperware Brands (TUP-N) Shares surged more than 40 per cent on Friday after the kitchen storage container maker finalized a debt restructuring deal as it attempts a turnaround of its business, reinvigorating retail investors’ interest in the company. Widely recognized for its bright-colored plastic airtight containers, the company had recently caught retail traders’ attention, which has helped drive a more than 449% share surge over the past three weeks.
The Rundown
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U.S. stocks have rallied this year, largely on the back of companies with ties to artificial intelligence (AI), but as those shares become expensive, investors are turning towards firms set to benefit from government spending on infrastructure.
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Globe Advisor
Why this money manager has reduced his energy holdings in favour of more tech and consumer stocks
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What’s up in the days ahead
The market outlook for the next year to 18 months hinges on things we’re really bad at predicting – notably, whether disinflation will continue to fade away, how fast AI will affect the real economy, how hard El Nino will hit food prices, whether China will stimulate its economy, the course of the Ukraine war, and whether Trump will return to the White House. You can construct positive scenarios; you can build negative ones. Maybe the wisest course is to admit that we simply don’t know. So what should investors do? Ian McGugan will share some thoughts.
Stimulus, storms and soft landings: World market themes for the week ahead
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Compiled by Globe Investor Staff
Scott Barlow