Nick Hodge started touting a new solar stock last night or this morning, and it’s already driving dozens of reader questions in to Gumshoe HQ. He’s selling subscriptions to his Early Advantage newsletter, which used to be called Alternative Energy Speculator, and he’d like $499 for access to this “free” report.
So naturally, I thought my favorite Gumshoes (that’s you, dearest Irregular) would like to hear about whatever stock he’s teasing. Let’s have a look, shall we?
Let me preface this, too, by saying that the folks at Angel Publishing (that’s Hodge’s publisher) have fallen in love with next-generation solar stocks before — and in at least one case, they’ve helped to drive a stock up to incredible heights in a short period of time. That was New Energy Technologies (NENE, trades over the counter), which I think they started teasing and touting under its earlier name in 2007 or 2008 but really jumped on in October 2010 with a huge and long-lasting ad campaign. That was accompanied by some press releases from the company and a bit of news coverage, but from what I can tell the “aggressive recommending” from the Angel folks was probably the primary reason that the stock went from about $1.50 to almost $8 for a few months before falling back down … it spiked again earlier this year, but has now fallen back to about where it was in mid-2010 in the $1.50 range (in this case it was Jeff Siegel, who ran Green Chip Stocks — the same newsletter we covered a few days ago that’s been renamed Power Portfolio). That particular technology was the “spray on film” that was going to be used on windows and revolutionize solar by making every window into a solar cell. I was awfully skeptical about it back then, though I know quite a few readers tried to trade those shares — hopefully they got out before the $8 turned back to $2.
So that’s the lead-in — that sometimes these newsletters get strongly behind a stock and it can go up dramatically over the short term even if the company hasn’t generated any revenue to speak of. It doesn’t always work, but it’s one way to play these — try to enjoy the ride that the newsletter gives a stock, but make sure to get out before you drink the Kool-Ade and start believing that the company is going to unseat GE or Apple next year. Alternatively, you can always pick up a handful of promising “next generation” stocks like these and hold them for years and years, hoping that the scientific breakthrough is real and becomes proven and that the story does really play out before someone invents a better technology or before the company runs out of money, but these companies are so small it’s more like venture capital investing — only you don’t get to sit on the board like a VC investor does, you do have to keep in mind that you’re counting on one spectacular company to make up for the dozens that fail before they reach critical mass.
I’m writing this little intro before I’ve looked at this particular stock they’re teasing this time around, that’s just a generic thought for “next big thing” microcap tech stocks, especially when they’re micro-micro-micro caps like the stocks often touted by this crowd (ie, $20-$50 million, so tiny that it’s really silly that they’re public at all, and small enough that even our little Gumshoe readership here could easily cause the stock to double if enough of you got excited about it in a hurry).
If you want another example, you need look no further than DNI Metals (DNI in Canada, DMNKF on the pinks) — that got sustained recommendations and re-recommendations from Nick Hodge starting in November last year and running through mid-March of this year, after which the really aggressive marketing that teased the stock seemed to die down a bit … and, whaddya know, the stock went from about 20 cents in November to a peak of around 70 cents in the first bit of March, and has pretty quickly retreated to about 25 cents again, arguably the “natural” level of the shares before they got a lot of newsletter attention. Despite the fact that these kinds of stocks are often touted and recommended as huge plays that will develop over years and decades, investors are conditioned to expect immediate returns and catalysts, which is often a bit of wishful thinking when you’re talking about very early stage companies who are just discovering or developing technologies … and these kinds of newsletter recommendations that promise the moon and stars delivered to your doorstep don’t tend to create long-term shareholders, so when the editor loses interest and moves on or the story changes, look out below.
With that in mind, what is the stock being pitched this time around?
“Even the White House knows it’s engineered for profits like the fastest-growing companies on earth…
“Why you need to buy this non-solar solar stock right now….
“I want you to buy shares of a very unique “solar” company.
“Before you do, though, you’ll need to check the price — and make sure it hasn’t already popped from around $1 to $21.
“You see, this company just created a unique technology that cuts the cost of solar technology in half… and doubles its power output.
“In other words, it would make solar energy as cheap — and sometimes even cheaper — than coal, natural gas, or nuclear.
“This is a breakthrough that already has the world’s largest manufacturers lined up for large contracts… so there really isn’t much time left…”
How can you help but be excited by that kind of language? But wait, it gets better!
“… this isn’t a “solar” company in the typical sense; it’s in the applied materials and licensing business.
“Plus unlike virtually every solar company in operation, these guys don’t need regular handouts from Uncle Sam or other governments to stay afloat.
“In fact, their business model and technological breakthrough are so perfect…
“ABC News reports: They recently got a call from the White House pleading the CEO to join an advisory group to give advice to small businesses.
“The Obama administration — with access to business legends like Warren Buffett, Bill Gates, and Tim Cook — went to this company’s CEO for guidance on how to kick-start small businesses in America.”
Wow, a solar company that doesn’t need subsidies? Interesting … but what is it they’ve done that’s so awesome?
Well, they’ve apparently somehow made solar cells much more efficient — here’s the teasey bit on that:
“The L.A. Times thinks the company’s breakthrough could let solar panels operate at double their efficiency:
‘Breakthrough Could Double Solar Electricity Output
‘A new discovery from [censored] may allow photovoltaic solar cells to double their efficiency, thus providing loads more electrical power from regular sunlight.’ — The Los Angeles Times
“MarketWatch has boldly declared this technology will change the world:
‘Breakthrough Solar Technology a Game Changer
‘[The company] has lab results showing it can reduce the cost of solar power to the point it’s competitive with the lowest-cost fossil fuels. And it comes without the pollution and negative health effects you get when burning fossil fuels.’ — MarketWatch
There’s a bit of hooey to that, which I’ll explain in a moment, but let’s first ID the company by checking out a few more clues:
“Its business platform was designed from the ground up to mimic the most profitable companies in history and experience similar growth….
“In fact, as the CEO bluntly put it during a private meeting I had shortly before the opening ceremony of their new 4,000 sq. foot plant in Upstate New York: ‘Solar doesn’t work.’
“In other words, he’s well aware of the shortcomings of the industry and where the problems are.
“But he’s not in business to compete with them.
“Rather, his firm has invented the solution — one that can be used by all solar companies — that could finally make prices drop to the point where it’s a real, viable energy source…”
That part is basically about how the company is not going to make solar cells — instead, they’re going to sell the equipment to give solar cells the company’s special coating that dramatically improves performance, and they’ll use the “razor and blade” business model because they’re selling proprietary chemical formulations for those coatings and solar cell manufacturers will have to buy the supplies from them.
So what is the technology? Hodges is calling it “Absolute Black” — it’s basically a coasting that helps solar cells to absorb more of the sun’s energy instead of reflecting it away. Here’s how he puts it:
“‘Absolute Black’ Drops the Price of Solar in Half
“While it’s ready to introduce several solar advancements — advancements that could each make you quite wealthy…
“The first order of business (and something they commissioned a Russian Nobel Prize-winning scientist to help solve) is perhaps the most important… and the most profitable.
“Drop the cost of solar production in half
“A move that by itself could bring the entire industry on an even playing field with coal — and solidify this firm as the major supplier of the technology….
“While in New York, I was fortunate enough to have a panel coated right in front of me.
“It looked extremely simple. And in a way, it is.
“But what I witnessed is a patented process that no other solar manufacturer on the planet has the current capability or know-how of doing.
“As I already mentioned, making a coating is normally an extremely expensive, time-intensive, and dangerous process that requires massive machinery, high temperatures, and vacuum-sealed chambers.
“Everything this company does is done at room temperature, with nothing more than the setup on the screen, and it takes about the same amount of time as baking cookies.
“But it’s this process that is about to save the solar industry billions of dollars every year, dropping solar’s price per watt as low as coal’s.
“The final result isn’t just an industry standard covering…
“This coating traps 10x more light than the current standard”
And apparently this coating process can be easily incorporated by any solar cell manufacturer, and they’ve apparently already had inquiries from China, India and Italy who are waiting for the plant to come online.
Hodge thinks this $30 million company, priced under a dollar per share, will hit $11 as they supply the chemicals for their proprietary process and eventually ramp up to $21 a share as solar installations escalate — maybe even giving away the machines to get people to buy more chemicals.
More? He quotes the CEO:
“I know many of you have been wondering what’s been going on at our new Research & Development Center. I’ve recently returned from New York and I’m happy to report that our work there should pay off dramatically in the weeks ahead.”
You don’t often hear CEO’s issue statements like that about “weeks” — usually they say investments will pay off in the years ahead, so that has us thinking about more press releases and potential catalysts for the company in the very short term, which always gets the blood boiling.
And to borrow a line from Ron Popeil, “But wait, there’s more” …
“Information detailing how this company ALSO plans to double the power output of today’s solar panels
“When the CEO called me and told me his company had developed a technology that could change the world, he was only partly right.
“His company actually has two technologies that will change the world:
“The first one cuts the cost in half.
“The second one nearly doubles the power output of today’s best solar panels….
“… this same outfit that’s dropping the price of solar in half isn’t just going to help other companies increase output by a measly one or two percent…
“Rather, they’re going to double the current output!
“The science behind it is incredibly complicated…
“The easiest way to think of it is by picturing two panels stacked on top of each other — only neither is getting in the other’s way.”
We’re shown a diagram and given some more verbiage to explain this, but basically it means that the company has a stacked cell technology, with each layer absorbing different wavelengths of light and increasing the overall absorption. There are several other technologies and companies that are doing similar things to tweak the design of solar panels to allow them to absorb more energy, but apparently this company has some kind of unique twist.
So who is our little teased stock? Well, thanks to some misleading info in the tease that sent us off on a couple tangents (interesting though they were), the Thinkolator had to pensify on this one for a few minutes … but once we fed in the company details, we got our answer right quick — this is Natcore Technology (NXT in Canada, NTCXF on the pink sheets).
Which is not the company or specific technology referenced by that LA Times article that Hodge quotes … nor the firm in the press release that he attributes to MarketWatch (copywriters do this all the time — if a press release from a company is published on the MarketWatch website, or any other financial site you’ve heard of and ascribe some authority to, they quote the press release as if it’s an editorial endorsement from the publisher).
In fact, those two quotes are about two different technologies altogether — the first one is a breakthrough from a Texas research team on capturing more electrons from sunlight using a special nanotech plastic, it’s technical and involves words like “quantum” that give me the sudden urge to get up from my desk and go eat lunch to avoid thinking too hard, but there’s a pretty good explanation of it here. They released the results of that latest breakthrough in December and, again, it has nothing specifically connecting it to Natcore — this is a government-funded research project and it has not, as far as I can tell, gotten to the point where it’s been licensed to any companies to actually develop a commercial product … it’s pretty early days for that breakthrough.
Likewise, the other one is about a Canadian company that’s using concentrated solar thermal power — something that is also widely done in industrial scale solar arrays where the sun’s rays are focused to increase the intensity and then used to, in this case, heat water and run a steam turbine to generate electricity. The specific company tied to that particular press release is SHEC Energy in Saskatchewan, and they’re private. Again, it has to do with generating more energy from solar — in this case, more efficient heat collection, but it’s not connected to Natcore.
But all the stuff about our specific company that’s teased in here is about Natcore. They got quite a bit of attention from ABC News and from the White House back in 2010 when they signed a joint venture deal to do some manufacturing in China and became, at least briefly, a good story of a startup company that wants to manufacture in the US but couldn’t get things lined up right … and therefore a poster child for the need for better and more supportive US industrial policy (though as we saw with Solyndra, sometimes directly supporting startups doesn’t end well).
What Natcore was selling back then was just their deposition technology — instead of chemical vapor deposition, which is the standard for applying think nano-scale layers for stuff like semiconductor or solar cell manufacturing (we’ve talked about that before, it’s the basic technology for which CVD Equipment sells tools), they use a liquid deposition process that’s apparently less toxic and demanding. This is the basic pitch from Natcore’s website:
“We’re replacing the traditional thermal vacuum processes, such as CVD and PECVD (chemical vapor deposition, plasma enhanced chemical vapor deposition, etc.) for making solar cells with our liquid phase deposition (LPD) wet chemistry process.
“We think LPD is the future of solar. It is at the core of everything we do. It results in solar cells of higher quality, and is safer, cleaner and less expensive than CVD. That’s why we’re using multiple LPD-based applications to make solar power cost-competitive with conventional power.”
So that’s their core technology for safer, cheaper manufacturing, which so far hasn’t led to much — but it’s early days yet, and they’ve buttressed it now with two add-on technologies beyond the deposition process that they think dramatically improve solar, the “absolute black” coating and the multi-spectrum layered cells. The liquid deposition process is licensed from Rice University and the scientist there with whom they’re partnering, as is the quantum multi-spectrum stuff, which is covered in a bit more detail in this press release. The “absolute black” silicon technology is licensed from the National Renewable Energy Lab (NREL), though apparently Natcore actually developed the coating based on that technology.
The liquid deposition process, which can theoretically reduce costs substantially, is really what sets Natcore apart and gives some hope that they can grow, though it might be the “absolute black” that gets them enough attention from solar cell manufacturers that they get a chance to develop it through to commercial production. They do have R&D assignments from a few solar manufacturers who are interested in different aspects of the liquid deposition and the absolute black layer application, and the company is, of course, optimistic — this is what the CEO says:
“These companies came to us because they were aware of our successes with LPD and black silicon. If the results are what we anticipate for these tests, these companies would very likely be significant near-term customers for our AR-Box, an LPD license, and the requisite chemicals.”
You can see the various webpages on their site that describe their technologies here — Hodge clearly took the images from these pages for the “Tandem Solar Cells” (that’s the multilayer, multiple spectrum cell technology). They also have an investor presentation up on their website, though it’s a bit old.
The company was founded by the professor behind the Science at Rice, Andrew Barron, and a few other people, including Brien Lundin, who you might recognize if you’re an active Canadian resource investor — he’s Chair of the board now. The CEO is Chuck Provini, who seems to be the entrepreneurial driver and salesman and money guy, he came over from investment bank Ladenburg Thalmann.
How about the current state of the company and their financials?
Well, it’s indeed tiny — so keep in mind those warnings I shared at the beginning of today’s note. The share price is right around 83 cents as I’m typing during the day on Friday, and the market cap is just under $30 million. Those are actually Canadian numbers, though the two currencies are extremely close to parity again (85 cents for the shares traded on the Venture Exchange in Canada would mean it should trade at about 81.5 cents in the US, and that’s also about where the pink sheets are trading now). I suspect that the stock was recommended to their subscribers on either June 4 or yesterday on Thursday, June 28, since those have been the most recent days when volume spiked over the past month, but it did also spike a couple times in April and May without additional “real” news (ABC News and others did cover it at the end of March, when the “Absolute Black” product was announced, which probably brought some buyers in), so the newsletter reports could have come out from the Angel folks or from someone else to drive interest over that time, too. They have at least been following the stock for long enough to get the attention of Natcore, and I expect Nick Hodge really did visit their R&D plant in Rochester, NY — he’s also listed as one of the analysts who covers the stock here.
And there’s a reason why they don’t have real financial results easily accessible on their website — this is still really an R&D and ideas company, they haven’t gotten enough traction to generate any real revenue yet. They trade for close to ten times their book value, which is whatever their assets are worth plus the cash — they report that as being about $2 million, which means that if you cut out the cash ($1.5 million) they’re not putting much value on their research lab or their equipment or licensed technologies. So you’ll have to decide for yourself how much you think those are worth. They have generated no revenue in the last twelve months and they’re burning through cash at the rate of about $650,000 a quarter as of the first quarter of this year. So if this pace is continuing or increasing — as I imagine it must be, since they are conducting research for companies — they’re going to have to raise more money within the next few months unless they book a substantial amount of revenue. Which seems optimistic to me, though the CEO exudes optimism.
The company probably isn’t really big enough to generate sustained investor interest just from press releases or standard quarterly reports, generally for a stock this size you need someone pretty aggressively touting the shares to get attention unless there’s a real financial breakthrough (ie, a contract signed that changes things dramatically, not just the promise of some R&D contracts). The company has gotten an impressive amount of news attention in the past, so they might again — but for good or ill, the stock will probably keep going up for at least a bit if Nick Hodge stays aggressive in pushing it and touting it to his subscribers and to new potential subscribers … or if they actually get a potentially lucrative manufacturing or licensing deal (I could certainly be wrong, but my guess is that it’s going to take more testing and lots more back and forth with manufacturers before — if — they get a major manufacturing line to use their technology, it’s hard to unseat an established manufacturing technology), but do keep in mind that the shares have already just about doubled since they sent out the press release about their “absolute black” product in March. I’m no accountant, but I was a little surprised to see that of their $800,000 or so in expenses in the first quarter only $32,000 was classified as R&D, a similar amount to the $27,000 they spent on marketing — maybe that’s because Rice University and its grad students already did the research and the lab folks fall under “wages and salaries” or “office expenses,” I don’t know.
I also don’t know if Hodge actually owns the stock personally — since he didn’t disclose the name of the stock in the ad he wasn’t really obligated to disclose his ownership — but I have noticed in the past that the Energy and Capital disclaimers generally say that their editors and writers are allowed to buy and sell the stocks they cover at any time. Hopefully they have rules to prohibit their editors from trading at the expense of their subscribers, most legitimate publishers have trading windows or restrictions, particularly when you’re talking about such a tiny stock whose price could be easily influenced.
Oh, and that quote about looking for positive news in the weeks ahead? That’s not actually from the CEO, it’s apparently from the Chairman, Brien Lundin — and it came out in January, so I don’t know if the R&D Orders were the good news he was looking for or if he thought they’d actually book some revenue from Rochester. His statement appears to not be on the company’s website any longer, but you can see it here.
I don’t own shares of this one, just to throw in my personal disclosure — though given the performance of past Angel Publishing teases of microcap stocks I would be a little bit tempted to throw some milk money at it to see if this one runs up as many of them have, with the caveat that I personally think the odds are long against the company’s fundamentals justifying a run up to $11 in the near future and I’d look at this as more of a trading opportunity based just on this newsletter coverage. Which, as you can imagine, is a risky bet because we don’t have any control over Nick Hodge and they could uncharacteristically drop this ad after a couple days instead of milking it for a few months. It’s also the case that this particular newsletter is $499, so that’s going to reduce the number of possible subscribers a bit, and I’m publishing this here just for the Irregulars, our small group of insiders, so it won’t get as much exposure from us as it would if I wrote about it for the whole world of free readers and Google picked up the page — certainly plenty of amateur gumshoes will come up with the solution on their own, and I’m sure the message boards will fill up with chatter about this eventually, but that kind of thing does not exactly form a strong foundation for a stock … it’s almost as iffy as trying to trade around the paid stock promoters who push complete nonsense picks our way all the time.
Still, I’m tempted by the speculative trade but I won’t personally trade this stock, at least not soon, since I’m writing about it here (buying a microcap stock and then writing about it to a few of my closest friends and then selling it after I’ve helped drive the price up would make me feel a bit dirty, even if it’s probably allowed by law as long as I tell you I’m doing it). What do you think? Intrigued by the potential and the possibility, or interested in trying to surf the attention this stock will probably get over the coming weeks (and willing to risk being the last one to hear when the wave of attention stops)? Let us know …
How do you make sense of it all?I check my net worth and my portfolio (combined from several different brokerage accounts) using Personal Capital at least once a week, it's free and brilliantly organized.
Personal Capital has great tools for tracking spending (they can cut your spending by 15%), but what I love most is their automated financial dashboard -- it will look at all your assets and debts, tally up your asset allocation, project where you'll be at retirement, and suggest ways to manage risk or improve returns. It's free, I think their free tools are great, and I think it's worth checking out -- you can do so here.