High-Potential Hydrogen Stocks Named By Goldman Sachs

Goldman Sachs reports that clean hydrogen is on the rise.

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Analysts at the bank said in a note published on Feb. 13 that the clean hydrogen revolution continues to accelerate. “This was reflected in our hydrogen forecasts, where we are almost tripling our base case scenario for 2030 compared to what we projected last year (Feb 4, 2022).”

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There are several factors that are driving the clean hydrogen market, such as the positive regulation gaining traction with the U.S. Inflation Reduction Act (IRA) at the forefront, as well as new efforts to create a global seaborne market for hydrogen (hydrogen can be transported by ships in liquid form).

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There is expected to be an increase in the capacity of the fuel, one of the few alternatives as a large part of the world looks to move away from fossil fuels, with the majority of the additions expected to come from Europe, Asia, and Australia in the near term, according to the bank.

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Goldman said there is also a "strong upside" from the U.S. and Canada as IRA incentives will drive large-scale projects there.

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In the process of burning hydrogen, energy is produced in the form of heat, with water as a byproduct as a by-product of the process. Therefore, the energy created from hydrogen does not emit any climate-warming carbon dioxide into the atmosphere, although, to convert hydrogen into a useful form, energy needs to be used, and that energy may not always be renewable. 

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Hydrogen comes in several forms. Among the cleanest hydrogen types, green hydrogen uses renewable energy sources, while blue hydrogen uses natural gas.

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Stock picks

The following stocks are recommended by Goldman as ways to play the theme:

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• Ceres Power

This stock is given a price target of £6.70 (£8.03) - or 50% upside potential since the bank states that the company has adopted a "differentiated, high margin" business model.

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Ceres' partnerships are set to unlock royalty revenue streams in the hydrogen and clean tech sector, as partners such as Bosch and Doosan Fuel Cell are "significantly" scaling up in the hydrogen and clean tech sectors, according to the bank.

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• Industrie De Nora

Given De Nora's high exposure to U.S. sales, Goldman said it is an important beneficiary of IRA incentives.

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“In the years to come, De Nora is likely to emerge as one of the key enablers of the green hydrogen economy, the next critical pillar of its growth strategy.

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There are three factors that the company claims set it apart in the green hydrogen industry, according to the report: its proven intellectual property, its differentiated supply chain position, and its “resilient profitability”, as well as its strong balance sheet, which makes it more resilient even during a recession.

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There is a potential 30% upside in the stock based on Goldman's price target of 24 euros ($25).