MR MONEY MAKER: How investing in hot air could help you to clean up
What’s Happening?
When it comes to hot air, the past week has been full of it in the investment world – yes, I’m talking about the Reddit furore.
Good investment must have a clear and understandable line of logic. It is worth remembering that if someone is suggesting a great investment idea and you don’t understand it, then that is their problem and not yours.
However, investment is always a risk. The key is to measure that risk against your expected return, so that when looking at new technologies there is a huge difference in punting on a fascinating concept and investing in something which is at least grounded in some logic. Here, then, is a newish technology which has already had its failures but in my view has some real value in the future: replacing old carbon fuels with hydrogen. When you burn it, the only by-product is water.
Looking ahead: Hydrogen is clean and easily available but has been expensive to utilise
Why Does It Matter?
We can all agree that we need cleaner fuel and power. We have already seen the growth in alternatives such as tidal, solar and wind power. Of course all of those are by their very nature variable.
However, one that has been around for a while, but is still developing, is hydrogen. It is clean and easily available but has been expensive to utilise. I appreciate that anything to do with green issues can be quite rightly viewed with a sceptical eye but we already have companies developing the technology with some success.
Caution is needed, though, as although these may look very appealing, they are as yet not profitable.
What Should I Do?
There are two companies that I have been watching, which have already been talked about and where the price has risen. Their value lies not only in their own profitability but also their attractiveness to a potential takeover.
Sheffield-based ITM Power has opened its ‘gigafactory’ and has attracted two large shareholders operating as partners in the form of the large gas firm Linde, and Snam, the Italian energy company.
The other is Ceres, in which German company Bosch has taken an 18pc stake. This company earns a good proportion of its income from licensing its technology rather than production.
Both shares have already risen, but the technology has crossed a line of credibility and with some larger corporates alongside, that is a sign of greater confidence.
Any Suggestions?
ITM Power and Ceres are both quoted on the AIM junior investment market and their price already reflects the level of optimism.
For a less risky route, a passive tracker like Global X CleanTech ETF will give you a broader investment in the sector.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.