Hydrogen fuel cells stand at a Ballard Power Systems facility.
James MacDonald/Bloomberg
Citigroup analyst P.J. Juvekar has a trading idea for aggressive investors: buy Plug Power and sell Ballard Power Systems . Both are involved in hydrogen fuel cell technology, but Juvekar thinks Plug’s stock can outperform Ballard’s.
Wednesday, Juvekar downgraded shares of Ballard Power Systems (ticker: BLDP) to Hold from Buy, keeping his target for the price at $19 a share. Disappointing sales results in China were the reason for the downgrade.
He also increased his Plug Power (PLUG) target to $56 from $35 a share.
Based on where the stocks were trading Wednesday, and Juvekar’s price targets, there is room for Plug to gain 31%, but only 12% upside for Ballard. That’s enough of a spread for Juvekar to recommend buying the former and selling short the latter.
A pair trade, like the one suggested, tries to capture the difference in two related stocks, while cutting down on things such as market risk. Plug and Ballard stocks, presumably, will rise and fall together by similar amounts in reaction to news about the economy and about hydrogen fuel-cell technology.
The gains from the pair trade would come if one company outperforms the other. Juvekar believes strong sales of forklift products can benefit Plug Power in 2022. He likes Plug’s hydrogen strategy better, too.
“We think Plug will outperform [Ballard] in the near term with its ‘hydrogen ecosystem’ strategy providing hydrogen fuel, electrolyzers and fuel cells,” wrote the analyst in his report.
Shorting a stock–borrowing a stock and selling it, then waiting for the price to decline so it can be bought and paid back at a lower price–isn’t for everyone. An investor’s losses can mount up without limit if a stock they have sold short suddenly takes off, but the potential for gains still has its appeal.
Anyone shorting stock for the first time should watch those positions even more carefully than they track their long holdings.
Including Wednesday’s downgrade, 50% of analysts covering Ballard shares rate them at Buy. The average Buy rating ratio for stocks in the S & P 500 is about 55%. About 73% of analysts covering Plug stock rate shares Buy.
Ballard stock was off about 5% in midday trading. The S & P 500 and Dow Jones Industrial Average had slipped about 0.2% and 0.5%, respectively. Plug stock is down about 2%.
Write to Al Root at [email protected]
