Fuel cells. That's the latest idea that has caught the Street's fancy. Shares of fuel-cell developers have surged, among them FuelCell Energy (FCL), which rose from 11 in late July to 37 1/2 on Jan. 19. Why fuel cells? Like batteries, fuel cells produce electricity without combustion or rotating machinery. Unlike batteries, however, fuel cells keep on producing power as long as their fuel and oxidant supplies are maintained. In addition, fuel cells produce electricity more cheaply and efficiently than conventional generators, and they emit less pollution.

FuelCell is talking with industrial equipment makers to form partnerships to build and market its stationary power plant, called the Direct

FuelCell. Its current partners are a DaimlerChrysler unit in Germany and Mitsubishi in Japan.

DFC plants are compact. A 250-kilowatt plant is the size of a tennis court, which could provide electric power to about 1,500 homes. "The DFC power plants are inherently more effici-ent than other fuel-cell systems," says Warren Bagatelle, managing director at Loeb Partners, which owns a 12% stake in FuelCell Energy. He says that a 250-kilowatt DFC plant operates at a 50% efficiency rate, vs. 30% from a traditional gas-turbine generator.

With the stock's sharp runup, has FuelCell become overvalued? Far from it, says John Adams, chairman and CEO of Boston investment firm Adams, Harkness & Hill. He says the fuel cell market is so huge--about $30 billion--that shares of FuelCell, with a market cap of just $200 million, appears very cheap. FuelCell posted a loss of $1 million on revenues of $20 million in 1999.

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