A123 Systems’ IPO Sparks Rally In Clean Technology
Sector
The Dynamic Wealth Report
September 29, 2009
Should You Buy This IPO Now?
by Robert Morris, Editor
I feel like I’ve traveled back in time to 1999. I remember that period
of the market well. Back then I was a stockbroker just starting out with
Smith Barney. I was managing tens of millions of dollars for clients who
were all counting on me.
As you can imagine, I was studying the market relentlessly.
I saw a lot of amazing things happen that year. One of the craziest was
the dot.com IPOs. Venture capitalists plowed billions of dollars into
hundreds of internet start-ups. And, the public’s appetite for them was
insatiable.
Almost every internet company that did an IPO that year saw its stock
price soar. Many of them doubled, tripled, or more on their first day of
trading. Those investors lucky enough to get in on the IPO made fortunes
overnight.
We used to joke about it in the office. My manager once quipped, “All
you need is a good story and the words ‘dot com’ in your company name
and you’re an instant millionaire.”
And that was the truth.
Companies with very little or no operating history, no revenue, no
profits, and unproven business plans attained billion dollar market caps
overnight. You might remember Webvan, Pets.com, and eToys to name a few.
Of course, we all know what happened in the end.
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Some dot coms blew their money on lavish advertising campaigns. Others
discovered they could never make a profit. And, most of them went out of
business within a few years of their IPO.
So, what happened to conjure up memories of IPOs past?
Last Thursday we had one of the biggest IPO days of the year. Five
companies offered their shares to the public. The big winner was lithium
ion battery maker A123 Systems (AONE).
AONE saw its stock jump more than 50%. At the end of the day, it had a
market cap of nearly $2 billion. (You can see why I was reminded of the
skyrocketing dot com IPOs.)
Why’s the stock soaring?
Investors believe AONE has the leading technology for next generation
rechargeable lithium ion batteries. You probably own a few of these
batteries right now. They’re commonly used to power cell phones, MP3
players, laptop computers and other portable electronics.
But, AONE has a much larger potential market in its sights.
It wants to be the top supplier of rechargeable batteries for hybrids
and electric cars. And with good reason. The potential automotive
market for these batteries is absolutely huge.
The market is near zero right now. But, it’s poised to explode. Deutsche
Bank estimates $10 to $15 billion in battery sales by the end of next
year. And, sales of $30 to $40 billion a year by 2020.
Here’s why.
President Obama has set the goal of one million plug-in electric vehicles
on U.S. roads by 2015. Auto industry experts expect millions more in the
years that follow. And, every one of them will need a rechargeable
battery.
General Electric (GE) CEO, Jeff Immelt, is a big believer in
rechargeable lithium ion batteries. He recently said, “I’d be long on
battery technology… I think it’s a question of when, not if, it’s going
to happen.”
There are several different ways to play the coming boom in hybrids and
electric cars. But, the battery makers are believed to have the biggest
upside potential.
You see, the most expensive part of the hybrid and the electric car is
the battery. To make hybrids and electric cars affordable for most
consumers, the cost of the battery must come down.
The company able to reduce the battery’s cost and still provide
sufficient power and safety will ultimately control the electric car
market. And, many institutional investors and auto industry experts
think AONE’s battery technology will do just that.
But, that’s not all.
AONE also has strong backing from corporate heavyweights and the U.S.
government. GE, Motorola (MOT), Qualcomm (QCOM), and
Proctor and Gamble
(PG) to name a few, have all invested in AONE. And, the Department of
Energy has awarded AONE a $249 million grant to build world-class
production facilities in the U.S.
Finally, AONE has developed strong customer relationships. Chrysler,
BMW, Daimler, General Motors, Black & Decker, and BAE Systems are all
doing business with AONE.
You can see why the stock is soaring.
Should we buy AONE at current prices?
With the stock trading just over $18 a share, the company has a market
cap around $1.8 billion. That’s a pretty rich valuation for a company
with no earnings.
Clearly, investors buying the stock today are betting on the future. But at this point, that’s all this stock offers… promises of big things
to come. Personally, I’d rather buy it at a lower price.
However, given AONE’s huge potential upside, momentum investors may
continue driving the stock higher. If you want to speculate on AONE, a
good strategy is to establish a small position now and add to it on any
dips.
Editor’s Note: In The Penny Speculator service, Robert recently
recommended a leading Chinese supplier of materials used to make lithium
ion batteries. They make the same material that has investors clamoring
for AONE. However, this company is profitable, flush with cash,
debt-free, and undervalued compared to AONE.
Click here to learn more.
The IPO market is the busiest it has been in two years. Last week seven
companies offered shares to the public for the first time: A123 Systems
(AONE), Shanda Games (GAME), Select Medical Holdings (SEM),
Artio Global
Investors (ART), Vitacost.com (VITC), Apollo Commercial (ARI),
Colony
Financial (CLNY), and Foursquare Capital (FSQR). The big winner was AONE
which soared 50% in its first day of trading.
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