Plug Power Isn’t Your Best Bet From Defiance ETFs Green Hydrogen Fund

Stock Market

It’s been nine months since I last wrote about Plug Power (NASDAQ:PLUG) stock. Plug Power went on a wild ride in those nine months.

Source: Alexander Kirch / Shutterstock.com

Now trading where it did last May, it appears that $20 is set up as a support line for the developer of hydrogen fuel cell systems.

On three occasions over the past year, whenever PLUG got near $20, it would shoot higher. On May 10, 2021, it hit $20; less than a month later, it was $35. In August, it got as low as $23.53 before climbing to $45 in mid-November. On the last occasion in late January 2022, it dropped into the teens before recovering to $25, where it stands at this writing. 

So, from where I sit, if you’re comfortable investing in companies with lots of potential and plenty of financial losses, Plug Power seems to be trading at or near a good entry point.

InvestorPlace contributor Christian Docan recently mentioned the Defiance Next Gen H2 ETF (NYSEARCA:HDRO) while discussing Plug Power’s bearish momentum. Docan believes that the share price will fall further in 2022. He prefers waiting for the company to improve its cost structure while delivering on some of its investments.

That’s a fair argument. 

However, it got me thinking about the 25 holdings in HDRO. Although Plug Power is the ETFs top holding with a weighting of 9.09%, it’s not necessarily the best investment held by the ETF.

So, if not PLUG, then who? I’ll consider the possibilities.

The Obvious Alternative to PLUG Stock

Before I get into a couple of the names that might be better investments than Plug Power, the most obvious alternative is staring investors in the face. 

Buy HDRO. Then you don’t have to pick the best green hydrogen stock. Instead, if green energy is the real deal, five years from now, you’ll win whether PLUG Power delivered the bulk of the ETF’s returns. 

Mind you, HDRO doesn’t have a lot of assets – $47.9 million – for an ETF that’s been around for almost a year. For example, the Engine No. 1 Transform Climate ETF (BATS:NETZ) launched just a month ago and it’s already got $67.5 million in total net assets. 

It’s a competitive market out there. The faster you can get to $100 million; the more likely an ETF will stick around for the long haul. 

Defiance’s investment case states the following:

Bank of America has compared the current phase of the hydrogen market to smartphones pre-2007 and the internet pre-dot.com. It estimates that hydrogen will generate 24% of our energy needs by 2050, creating as much as $11 trillion in investment opportunities over the next three decades.

If you’re considering owning PLUG because of this argument, doesn’t it make more sense to have the power of 25 holdings behind you to ride the wave?

I know you don’t want to pay the 0.75% management expense. Well, if hydrogen pays off like Bank of America thinks it will, you won’t be complaining in 2050 about your fees paid.

The 2 Possible Choices

The fifth-largest holding at 5.55% is Air Liquide (OTCMKTS:AIQUY), the French provider of industrial gases, to over 3.8 million customers in 78 countries. 

It makes a profit. In 2021, it earned 2.57 billion Euros ($2.89 billion). Over the past 30 years, it’s grown revenues, earnings per share, and dividends per share by 5.4%, 6.7%, and 8.3%, respectively, compounded annually.      

In November 2021, the company announced that it was partnering with Eni (NYSE:E) to invest in building hydrogen refueling stations in Italy.  

“The partnership will leverage Air Liquide’s expertise across the entire hydrogen value chain (production, transportation, storage and distribution) and Eni’s expertise in commercial and retail activities coupled with the availability of an extended network of service stations,” stated the press release.

“This cooperation aims to promote the development of technologies, skills and infrastructures to enable hydrogen mobility, also evaluating partnerships with other relevant players.”

Air Liquide’s shares have delivered good, if not great, returns over the long haul. However, hydrogen could be the game-changer. 

The second possibility is Ceres Power Holdings (OTCMKTS:CPWHF). It’s spent the last 20 years developing SteelCell fuel cell technology embedded into existing products such as natural gas and hydrogen. 

However, like Plug Power, it loses money, so you’re no further ahead if you only want to bet on profitable companies.

The Bottom Line

When it comes to innovative, new technologies, I think thematic ETFs make a lot of sense. It reduces the company-specific risk while benefiting from the theory that “a rising tide lifts all boats.”

That’s not to say I don’t think PLUG is an exciting company, because it sure is. However, it’s always good to look at alternatives. They’re available. 

On the date of publication, Will Ashworth 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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. 

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