2 UK hydrogen and lithium stocks I’m watching

In the universe of hydrogen and lithium stocks, Christopher Ruane zooms in on two UK shares. He explains his investment approach.

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The rise of electric vehicles continues to shape predictions for future energy demand. There has been a big shift in recent years to planning for future battery use. That has helped many hydrogen and lithium stocks as investors hope to benefit from the role of those materials in generating and storing power for electric vehicles.

Here I’ll discuss two UK hydrogen and lithium stocks I’m watching. I’ll also explain my investment approach towards them.

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UK hydrogen stock

One of the hydrogen and lithium stocks I’m keeping an eye on is AFC Energy (LSE: AFC).

The name AFC references the company’s focus on alkaline fuel cells. Its specialism is hydrogen fuel stacks. Usage cases for this technology include charging stations for electric vehicles.

With demand for charging stations expected to boom, the company is in a strong position to benefit. It has already developed a prototype of such a charging station that uses its technology.

AFC Energy share price and risks

With a market cap of half a billion pounds, some investors clearly see potential in AFC’s future. Over the past year though, the shares have drifted down 10%. Could that make this a good time for me to buy AFC Energy shares?

My answer is no –  the shares currently feel too speculative for my own portfolio.

While I think the company’s technological competence is strong, I see risks. The pathway to full commercialisation still seems slow, which could elongate cash burn. The hydrogen cell development space is very crowded right now, and deep-pocketed competitors could damage the overall profitability of the market as it grows.

Lithium stocks watchlist

While it’s listed in the UK, Bacanora Lithium (LSE: BCN) offers global exposure. It has a number of international assets but the jewel in its crown is an interest in a lithium mining development in Sonora, Mexico.

The development is still at an early stage. The company and its partners have done test work on samples from the site to assess the likely quality of the area’s lithium. They’ve also done extensive analytical work to assess how large the deposits are, as well as how easily workable they may be.

Now they’re laying the groundwork, literally. Work is going on to clean up the site and build an access road. That underlines that the project has a long way to go yet. The company expects the  mine to be commissioned in 2023, although there’s no guarantee that lithium will start being pulled from the ground in commercial quantities by then.

Bacanora Lithium share price risks

The Sonora development looks promising to me and I’ve looked at the technical report on the Sonora project available on the firm’s website.

But there are always risks with any early-stage mining shares and that includes lithium stocks. The mine may be less productive than hoped. Extraction costs could be higher than planned. Both could damage profits. Additionally, doing business in Mexico can be complicated from a regulatory perspective.

If the Sonora project works out and the lithium price is high, I think today’s Bacanora Lithium share price could end up looking like a bargain. But there are substantial risks here for a fairly conservative investor like me. So for now, I’m watching the company, but I’m not yet ready to buy.

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