Fuel cell technology has at times been quite the rage on Wall Street, but long-term investors have fared poorly. Plug Power (PLUG) traded as high as $1,500 a share way back in 2000, and now you can buy it around $3 a share. No, that’s not a typo. The stock has come to life early in 2014 on a couple of positive news releases that set the stage for a continued move higher.
New Position: Plug Power (PLUG)
Type: Small-Cap Stock
Allocation: 1%
Strategy: Buy at $3.55 or Less
Plug Power makes hydrogen fuel cells, which are considered cheaper and more environmentally friendly than traditional lead-acid batteries. Specifically, the company targets powered forklift trucks for the material handling industry, which generates $20 billion a year. It is a small company that is not yet profitable, although the two analysts following PLUG estimate that losses will shrink from $0.48 share in 2013 to $0.11 in this year.
The stock is getting a lot of attention today after gapping up 16.5% at the open on the announcement that it was awarded a “significant” contract from a leading retailer to roll out its hydrogen fuel cell system at six North American distribution centers of the next couple of years.
This is the second big jump of the year. Back on January 2, PLUG popped after the company said that it met its order targets for the last quarter. Orders totaled around $32 million, and the list of companies that signed contracts included Wal-Mart (WMT), Kroger (KR), Procter & Gamble (PG), Bridgestone (BRDCY), BMW (BAMXY), Sysco (SYY), Coca-Cola (KO), and more. Several of these already use PLUG’s fuel cells in their fleets and have come back with follow-on orders to add more, such as Wal-Mart, Kroger, Mercedes-Benz and BMW. These contracts provide revenue not just for the product itself but also recurring revenues for service. A five-year contract covering labor, parts and the hydrogen infrastructure is typical, and the service piece accounts for about 25% of the contract’s value.
PLUG set a 52-week high at $4.90 back on January 8 before slipping back under $2.50 briefly at the end of January. This morning, it opened at $3.61 after closing Friday at $3.10. I look for momentum to be strong heading towards the next earnings report on the heels of these positive announcements to start the year. A move back toward its 52-week high set just over a month ago would give us solid returns.
Buy PLUG under $3.55 and make it a 1% position in your portfolio to start with. The stock is really moving around today, and with a little bit of patience, I think we’ll be able to get it on dips to $3.55. If you use an order, make it a day order only, so it would expire on the off chance PLUG doesn’t get to our price today.