There aren’t many newsletter publishers who push microcap stocks with the ardor of Nick Hodge and the Angel Investing folks, so I always end up getting a lot of questions about their picks — particularly for Hodge’s Early Advantage and DeHaemer’s Crisis and Opportunity, but also for Mining Speculator and Power Portfolio and several of their other letters.
But Early Advantage (formerly called Alternative Energy Speculator) focuses a lot more on what they seem to think are “ground floor” opportunities, in stocks that are so small they really have little business being public companies. That’s included picks like DNI Metals (DNI.V DMNKF) with their “Mine of the future”, New Energy Technologies (NENE) with their world-changing solar windows and others (DNI has cratered, NENE is above the initial coverage price but well below the spikes in the years since it was teased, just FYI, though both have clearly reacted much more to coverage like Nick Hodge’s than to any actual fundamental business developments).
And Gumshoe readers have been asking about the “Absolute Black” pick that Nick Hodge has been teasing, so I thought I’d take a quick look for you.
This is not a new teaser pick — but it is priced right around where it was when Hodge started teasing it, back in late June. He drove a lot of attention to the shares over the couple months after he first teased it – we covered it on June 29, initially just for our smaller cadre of Irregulars (we opened the story up to everyone a few weeks later due to heavy interest), and on that date, before we published, it traded at about 80 cents. It spiked on that first flurry of excitement and got to about $1.50 or so within a couple weeks, but then fell back down and gave up most of those gains and gradually drifted back down over the ensuing months, so it’s been bumping up and down between 80 cents and a dollar so far in 2013. I’ve not written about it since, and I don’t own shares.
So yes, it’s still Natcore Technologies (NXT on the Venture exchange in Canada, NTCXF on the pink sheets) that Hodge is teasing with his “Absolute Black” pitch. His ad is almost identical to the one I covered about nine months ago, I think the only difference now is that he’s hinting at a future $21 a share instead of the $11 he teased before … and the company has made some progress, incremental though it might appear, in developing their business since last Summer.
Natcore is a company that’s developing liquid deposition technologies that allow them to more cheaply and efficiently make solar panels or other thin film products — at least in the lab. They call it Liquid Phase Deposition, and that’s a different basic technology than the chemical vapor deposition that’s typically used for nanoscale layering of materials, and apparently they are able to get both a more light-absorbent black silicon (that’s the “absolute black”) and, separately, a dual layer (tandem) solar cell that captures more sunlight by having a second layer of quantum dots of silicon to absorb additional energy.
They think that the tandem solar cells are what have the greatest potential to really change the world by dramatically improving efficiency, but the “absolute black” coating for solar cells would also have an impact and that black silicon advancement (licensed from the national renewable energy lab, which is their partner on this project — NREL invented black silicon, liquid deposition from Natcore got it to be manufacturable) is much closer to potential commercial production. They’ve been testing it, have managed to build a cell using a scalable process, and are pushing to get a commercial-scale manufacturing process developed this year with a Chinese partner — here’s how they put it in the latest President’s Message from a few months back:
“For the first half of 2013, our “to do” list includes these goals:
· Hire additional scientists and technicians.
· Produce a solar panel from black silicon cells made in our own lab.
· Complete a second-generation AR-Box™. This solar cell processing station will be designed to produce black silicon solar cell wafers in a pilot line role in existing solar cell manufacturing facilities. Pending a successful testing outcome, we then hope to sell the machine to a Chinese cell manufacturer who has been sending us their cells to coat, test and optimize. As soon as we can put AR-Box into manufacturers’ hands we can turn on the faucets of chemical sales and royalty revenues, which will be our primary sources of income.
We have moved black silicon higher on our work schedule because we see it as our most immediate source of revenue. But we certainly haven’t forgotten our other technologies.”
That “chemical sales and royalty revenues” is really the key — Natcore has a financial guy in charge, Chuck Provini (formerly a higher-up in for a few asset management companies, including Ladenburg Thalman), and an investment analyst and newsletter publisher as Chairman (Brien Lundin), so they started off pretty early with a focus on a feasible business plan … and, not coincidentally, one that would appeal to investors.
Their goal is to develop a process based on their proprietary formulations for liquid phase deposition, which is a chemical bath process that’s less environmentally scary and less expensive than chemical vapor deposition, and to both earn royalties and sell the supplies that companies need to use the process. So revenue, other than occasional contract research or similar deals, probably won’t really hit their books until the process gets commercialized — but if you want to be optimistic and assume that the black silicon process does get commercialized and achieve a pretty high level of acceptance, with significant scale, then it’s quite possible that they could ramp up to very significant profits fairly quickly once that happens. It doesn’t take a lot of revenues to be really significiant if your market cap is $35 million.
Of course, this is really a venture stage research company hidden inside a publicly traded penny stock, so the chances of loss and failure are high and eventual dilution by additional equity raises is all but certain — though dilution doesn’t seem terribly painful when there isn’t any kind of base of sales or profits (or even projected sales) that is being split more ways, it’s just blue-sky potential being divided among more shareholders.
It’s also likely to be risky that we’re talking about what is essentially intellectual property in a business where most large-scale manufacturing takes place in China — so if black silicon is as successful as they think, and their cheaper and more environmentally-friendly liquid deposition process is really better than the current standard, will Natcore be able to keep hold of that process when it’s in the hands of Chinese manufacturing companies? If it gets to the point where they’re contemplating commercial production, which would mean they’re doing quite well, that might become an issue — but getting that far would be a bit of a victory in itself so it might be a nice problem to have to consider. I don’t personally have any idea how copy-able the process or materials might be.
I won’t go into further detail about Hodge’s blue sky predictions for the stock — I covered that in more detail in my article last year, and the promise and potential (and the ad) is pretty much the same now as it was then. Natcore is likely to be news-driven and volatile this year — they have contracted with a California company to develop a solar cell processing station that could be built into an existing factory as a pilot, using the black silicon technology, so if they can sell that and generate some initial materials sales and royalties that would certainly get folks interested and provide some kind of model of valuing future deals. For a company this small, even that relatively small step of one machine sold could potentially cause a big jump in the share price. That particular machine is being built in the US, supposed to be completed very soon (they said the first quarter), and the manufacturer of the machine has been licensed to build and distribute more of them if there’s demand. I’d guess that’s the next thing most likely to catch any investor enthusiasm, but that’s just a wild guess — and, of course, any bit of bad news, like a delay or a lack of interest in the “absolute black” AR-BOX machine among solar cell manufacturers, would probably bring the value of the company down.
As with any microcap stock, Natcore can easily move rapidly on any news — or on no news. The average volume of trading in the shares is only about $25,000 a day, which means they’re quite susceptible both to overreaction and to manipulation, and there is no institutional ownership or analyst coverage to provide a baseline for valuation or expectations. I am definitely not an expert on solar cell manufacturing, but the technologies they’ve licensed do at least sound interesting and useful, and if they’re inexpensive enough and efficient enough to improve the current standard solar cells then there’s always some potential. I like that they start out with a scalable business model and some financially minded guys in charge, but that’s certainly no guarantee that the commercial adoption of their technology by any of the big solar cell manufacturers will be smooth, easy or even possible — when you’re dealing with a tiny venture-stage company whose work is still focused in the lab, and a firm that would potentially competing in a large global industry, it’s always wise to be cautious. I’ve never owned the stock and don’t intend to trade it, but I’m sure I’ll keep half an eye on them and see how things progress this year — in no small part because I’m sure Nick Hodge will be reminding us all via email if the stock moves the way he hopes.