Investment bank picks 7 'green hydrogen' and 'blue hydrogen' winning stocks

Published Mon, Aug 23 202111:00 PM EDTUpdated Wed, Aug 25 20217:54 PM EDT

A Singapore-based bank has picked potential winners in the hydrogen market, which is expected to grow between five and eight times larger by 2050. Hydrogen can be used to store and deliver energy derived from other sources. And it's a clean fuel — when it's consumed in a fuel cell, it produces only water. Hydrogen is "especially promising" as a means of cutting carbon emissions, analysts at OCBC Investment Research wrote in a recent report. Singapore's OCBC identified banks that could benefit from the hydrogen wave, either in terms of investments or earnings. They include China's Sinopec and France's Alstom , as well as Air Products and Chemicals and Kinder Morgan in the United States. OCBC's price target for those firms are as follows: Sinopec: 4.94 Hong Kong dollars (about $0.63) Alstom: 45 euros ($52.81) Air Products and Chemicals: $316 Kinder Morgan: $21 The firm also has a "buy" rating and $131 price target on General Electric . OCBC said that GE's gas turbines can operate on hydrogen and have wide industrial uses. A "buy" rating is given to stocks that OCBC Investment Research sees having total expected returns (minus dividends) of more than 10% based on the current price. The ratings are medium-term calls within a 12-month investment horizon. OCBC also has a "buy" rating and $25.50 price target on Enterprise Products Partners , which already produces hydrogen for industrial use. The bank said it sees opportunities for the company to participate in hydrogen marketing and said it could contribute to local hydrogen networks. Green and blue hydrogen The hydrogen fuel process is still often dependent today on the burning of natural gas — a fossil fuel. As a result, investment is being funneled toward two areas intended to reduce carbon dependency, OCBC said: green hydrogen that's generated from renewable sources, and blue hydrogen which does rely on fossil fuels, but is paired with carbon-capture efforts elsewhere. OCBC noted CF Industries Holdings could benefit from this phenomenon. The company is a nitrogen producer investing in a green ammonia plant while also growing its blue ammonia capacity. Ammonia producers typically use natural gas to generate the hydrogen needed through a highly carbon dioxide intensive process, according to S & P Global Ratings . OCBC's analysts said CF Industries' could potentially capture a price premium as it sells a growing proportion of blue ammonia over time. The firm has a "buy" rating on the stock with a price target of $57. Hurdles ahead While acknowledging governments globally are setting "ambitious plans" for hydrogen development, OCBC warned the recent surge in investor interest may be "more speculative than considered," given the sector's nascent nature. For example, a recent study suggested that blue hydrogen may be worse for the environment than coal . OCBC analysts noted that costs for green hydrogen would have to decline substantially in order to become cost-competitive. Meanwhile, government assistance in the form of taxing carbon could help close the cost gap with fossil fuels. The analysts also said the U.S. would need to build and rely on dedicated hydrogen infrastructure because the existing transportation network is made with materials that are not suitable for the substance. OCBC also noted that storage remains an issue for the sector as efficient options are still "not widely available" across the country.

Oil pipelines near the Wesseling green hydrogen refinery, operated by Royal Dutch Shell Plc, in Wesseling, Germany, on Friday, July 2, 2021. Europe is pinning its green hopes on hydrogen in an unprecedented economic overhaul that aims for the region to reach climate neutrality by 2050.

Alex Kraus | Bloomberg | Getty Images

A Singapore-based bank has picked potential winners in the hydrogen market, which is expected to grow between five and eight times larger by 2050.