Hybrid and electric cars seem like they should be the investment
opportunity of the decade, right? Last week, I was inspired to
review the case for natural gas-driven trucks and cars after Steve
Reitmeister's visit to the White House where energy alternatives
were discussed.
But, Administration energy official Heather Zichal
didn't talk about natural gas cars. That was just my preferred
horse for the race. Zichal talked about the Obama plan to focus on
"advanced batteries" for hybrid electric vehicles (HEVs). So today,
I thought I would take a look at this area for possible plays. And
I found an incredible performer for the past year or so that
doesn't seem ready to let up yet.
Polypore Clobbers A123
Remember that darling pure-play of lithium battery
technology, A123 Systems (AONE)? Seems everyone
thought you had to own it after its IPO in 2009. That IPO took a
beating, though, going from $28 to $5 in the past eighteen months.
Meanwhile, a little company with a specialty application for such
batteries, and that goes by the ticker PPO, returned 500% to
investors as the stock rose from around $12 to nearly $72 in that
time.
Polypore, Inc. (PPO) makes highly
specialized polymer-based membranes used in chemical and magnetic
separation and filtration processes. With existing successful
business lines in conventional automotive lead-acid batteries, the
company’s patented "separation" technologies and membranes also
serve electrical, industrial, and medical device products.
The microporous membranes Polypore produces are
highly engineered polymeric structures that contain millions of
pores per square inch, enabling the management of ions, gases and
particles that range in size from the cellular to the nano or
molecular level. The company's energy storage division produces and
markets membranes that provide the critical function of separating
the cathode and anode in a variety of battery markets, including
lithium.
For lithium batteries in particular, PPO markets a
line of patented polypropylene and polyethylene monolayer and
multilayer membrane separators that are used in numerous
applications such as personal electronic devices, cordless power
tools, and HEVs.
A Key Fundamental Indicator Made It
Simple
How could you have found Polypore amidst the deluge
of alternative energy companies since crude oil hit $147 per barrel
in 2008? One key metric that always simplifies the earnings growth
of companies down to an apples-to-apples comparison is the Zacks
Rank.
Since January 2010, PPO was a either a Zacks #1
Rank (strong buy) or #2 Rank (buy) 19 times out of 21. The other
two ratings were a Zacks #3 Rank (hold). The Zacks system of
tracking analyst earnings estimates and revisions kept you in this
stock from $12 to over $70, though it has since fallen back to
$60.
Meanwhile, AONE for the same period was either a
Zacks #3 Rank (hold) or #4 Rank (sell). Not once has the stock been
anything above a #3 Rank. And with the consistent mediocre analyst
estimates and revisions keeping the stock fluctuating between the
two Zacks Ranks -- about 16 times back and forth -- investors have
had good reason to stay cautious, or just stay away.
Monday's upgrade of AONE by Morgan Stanely had the
shares up over 15% at one point as the brokerage noted it expects
the company to announce a major contract by January. If this move
is followed by other analysts raising their earnings estimates, the
stock may finally climb up from its #3 Rank and become a buy.
Until then, just wait for that day because you will
still have plenty of time to get in the stock. Why is this true?
Isn't it better to be early? Not necessarily. Because the buying
strength you want to see joining you should come from institutional
investors. And they won't move until the earnings picture is clear
and rising. The Zacks Rank will tell you this and you will have
many weeks to climb aboard before the big boys do.
Two More Lithium Names to Keep Portfolios
Charged
One more pure-play in this space to watch is
Ener1, Inc. (HEV), an energy-related technology
holding company which develops and markets lithium power
technologies and products for stored energy and battery power,
including secondary (rechargeable) cells, primary cells
(non-rechargeable), battery packs, and electronics, through
EnerDel, its majority-owned venture with Delphi Corp. The stock has
suffered quite a bit since its frothier days, along with others in
the industry, dropping from its 2008 highs above $9 to new all-time
lows this year near $1.
The good news is that the stock has recently been
the recipient of positive views from analysts. After spending a
year with Zacks #4 and #5 Ranks for its abysmal earnings
visibility, the name grabbed a #2 Rank (buy) on May 17. Trading for
just over a dollar, it could be an aggressive small cap component
to an investor's alternative energy campaign.
On the other end of the spectrum, I suggest looking
at a mature and diversified manufacturer like Johnson
Controls (JCI). The automotive systems and electrical
controls maker already had a strong business unit dedicated to
conventional batteries, and with its very positive outlook on
demand for light-weight, energy-dense lithium batteries, the
company is forging ahead with R&D here. As a Zacks #3 Rank,
this $24 billion dollar global automotive systems leader could be a
more conservative vehicle for exposure to the future of alternative
transport.
Catching Early Heat in New Industries
The bottom line with finding winners in the
alternative energy wars is paying attention to earnings visibility.
A lot of stocks catch early momentum if their "early mover" stories
seem hot. But a lot of that heat may just be burning cash with no
profits in sight for years.
The names that burn the hottest are the ones where
several analysts start to picture a positive earnings outlook. And
the Zacks Rank is always your first heads up because it is built
primarily on the agreement and magnitude of upward (and downward)
earnings estimate revisions.
Kevin Cook is a Senior Stock Strategist for
Zacks.com
A123 SYSTEMS (AONE): Free Stock Analysis Report
ENER1 INC (HEV): Free Stock Analysis Report
JOHNSON CONTROL (JCI): Free Stock Analysis Report
POLYPORE INTL (PPO): Free Stock Analysis Report
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