Green hydrogen looks attractive right now, Bernstein says. Here are its top stock picks

Published Tue, Apr 5 20228:35 PM EDT

Bernstein says green hydrogen looks "even better" as oil and gas prices rise. Here are the bank's top stock picks in the U.S. and beyond. Bernstein says green hydrogen is set to benefit as high prices and energy shortages draw attention to the transition away from fossil fuels and toward clean energy sources. "The rise in fossil fuel prices means that green hydrogen is starting to become competitive across a broader range of industrial and transport applications," Bernstein's analysts, led by Neil Beveridge said on Mar. 30. "While hydrogen remains a very nascent industry, growth in electrolyzer and fuel cell demand gives us encouragement that the sector will become increasingly important." Hydrogen can be produced in a number of ways, including v ia electrolysis , which uses electric currents to split water into hydrogen and oxygen. If renewables are used to power the electrolysis, some call it green hydrogen. Currently, the vast majority of hydrogen production is still based on fossil fuels , but analysts expect a renewed focus on green hydrogen in the coming years, given the growing international attention on climate change . Stock picks "Fuel cell companies have all recently expanded their capacity to meet growing demand and have set new targets. With increasing policy momentum, the companies are expecting meaningful revenue growth over the next few years," Beveridge said. In a note entitled: "Global Fuel Cells: Green hydrogen looks even better after oil and gas price rise," Bernstein outlined four stock picks, all rated outperform by the bank. One such stock is Plug Power , a leading fuel cell company in the U.S. Given the company's increasing focus on green hydrogen, the company will benefit the most from a potential tax credit for green hydrogen amongst fuel cell players, Beveridge said. He noted that the company delivered the strongest revenue growth among its peers in 2021 and aims to grow its revenue by 50% over the next four years to hit $3 billion by 2025, while delivering gross profit and earnings margin of 30% and 17%, respectively. Bernstein has a price target of $38 on the stock, which closed at around $32 on Apr. 4, representing a potential upside of 18.8%. The bank also likes Canada's Ballard Power Systems . It said the company operates in a fast-growing industry, where the interest in hydrogen for heavy duty transport remains high. The bank has forecast revenue growth of 11% for the company in 2022, driven by a 22% growth in fuel cell products. In the long run, Bernstein expects the company to deliver gross profit margin of 25%. The bank has a price target of $27 on the stock, which implies a potential upside of 74.2% to its closing price of $15.50 on Apr. 4. South Korean fuel cell manufacturer Doosan Fuel Cell also makes the bank's list. The company is targeting 701 billion South Korean won ($580 million) in revenue for 2022 — an implied growth of 83% from a year ago. Bernstein expects the company to generate 1.5 billion South Korean won of revenue at an implied compounded growth of 98%. The bank has ascribed a price target of 70,800 South Korean won on the stock, representing a 71.2% potential upside to the stock's closing price of 41,350 South Korean won on Apr. 5. Read more Morgan Stanley says these hydrogen stocks will win as countries build up their energy infrastructure Russia's invasion has made energy security a hot topic. The U.S. thinks hydrogen could be the answer Hydrogen generation could become a $1 trillion per year market, Goldman Sachs says Rounding off Bernstein's list is hydrogen fuel cell engine manufacturer Beijing SinoHytec. China's fuel cells market is expected to grow at a compounded rate of 140% into 2025, Beveridge said, with the bank forecasting revenue growth of 78% into 2025. Bernstein has a price target of 290 Chinese yuan ($45.60) on the stock, which implies a 90.8% upside to the stock's closing price of around 152 Chinese yuan on Apr. 5.

Green hydrogen has been touted as the future of the clean energy transition. While adoption is still in its infancy, rising oil and gas prices could given hydrogen adoption a boost.

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Bernstein says green hydrogen looks "even better" as oil and gas prices rise. Here are the bank's top stock picks in the U.S. and beyond.