If you can harness the frustration of the thousands of people whose cell phone batteries die at an inopportune time, or those whose children run through dozens of AA batteries in a weekend with their electronic toys, you might just change the world. Or at least, get a lot attention for your latest stock newsletter promo campaign that promises “The Death of Batteries.”
Battery power has brought incredible convenience and mobility to our lives, but it’s also a pain in the neck — you get dependent on these little power cells, and get to believe that you can have a supercomputer in your pocket that works all the time … but then you leave the GPS on for a couple hours, or play a few games of Fruit Ninja while waiting for the bus and, well, there goes your phone for the day. Wouldn’t it be great if these little gadgets could charge up in 30 seconds? Or hold ten times as much power? That’s basically the promise of most of the “next generation battery” teasers we see — that there’s a company who’s about to take away that frustration and inconvenience … and in so doing, naturally, make you filthy, stinkin’ rich.
That doesn’t mean these teasers always work, of course — I remember giving a presentation at a conference several years ago about a few of the most egregious teaser “promises” that had been made, and one of them was the oft-teased “Forever Battery” spiel about a company whose revolutionary advance would change the world because batteries would last, well, forever. The company did finally start selling a product, their idea is basically a new active membrane that means batteries don’t degrade over time so they could last “forever” if you don’t use them, giving you a nice $300 backup flashlight for your bomb shelter (“forever” means “twenty years”, by the way) — and they are trying to develop a “nano size” battery, too, for cell phones and such. Developing a teensy niche product after five years and selling a few of them doesn’t do much for the stock price, though, they went from about ten cents a share when they were first being pitched by Untapped Wealth to five cents a few months later, then they traded at about a penny a share for quite a while, and now they’re down to about a tenth of a cent. Amazingly still around and apparently still raising money from someone to stay afloat, with revenue of about $2,000 a year (that’s only ten of their fancy flashlights) and a market cap of a couple million dollars. So that’s the poster child I keep in mind when wondering whether a promising battery technology that sounds super-sexy in the teaser ads can become a product and generate sales.
But that’s not the story we’re being pitched today, of course (though I do still see those “forever battery” pitches from Untapped Wealth every now and then — sometimes these ads won’t die, even if the company they’re teasing does).
This time we’re looking at a substantially larger company, teased by the folks who run the Oxford Club, a much larger and more mainstream operation. So what’s their battery promise? Here’s a taste from the ad:
“The Death of Batteries
“Tiny Tech Company’s New ‘Super-Capacitor’ Breakthrough About to Revolutionize the Energy and Electronics Industries as We Know Them….
“Picture a world where you don’t have to charge your batteries any more.
“You’d never lose power in the middle of an important phone call…
“Or have to search for outlets in a crowded airport.
“No more untangling cords in the car…
“No more waking up to a dead smartphone…
“And say goodbye to those trips to the mall to replace your $25 watch battery.
“You probably think this sounds like a bit of a pipedream, right?
“But ‘The Death of Batteries’ is about to become a very real event, thanks to a new discovery that just won the Nobel Prize for physics.
“It involves a material that gives the world a radically new way to store energy.
“We believe this substance – and the battery revolution it’s about to trigger – will go down as the biggest tech story since the invention of the Internet.”
So … from that, the Oxford Club folks say that they’ve got the idea that will “Hand early investors life-changing gains.” What is it? More from the ad:
“I’m not talking about some far-fetched advancement that might… possibly… if everything goes just right… hit the markets a decade from now.
“Rather, it’s likely you will be holding this new kind of battery in your hand within a few years… if not months… from right now.
“And we’ve just identified one small company that holds over 230 patents on this remarkable material….
“… this one small company with a modest $1.3 billion market cap holds the key.
“And our research shows it’s ideally positioned to revolutionize the $89 billion global battery industry….
“This could very well be the best single-stock opportunity you’ll see in your lifetime.”
As you might have guessed by now, the “remarkable material” and “Rock Star substance” that the Oxford folks are talking about is graphene — the nanamaterial that’s produced from a sheet of graphite (carbon) that’s only one atom thick. The folks who were able to isolate these sheets of graphene using a mechanical process (um, “sticky tape”) did indeed receive the Nobel Prize a few years back, and graphene is being intensively researched by pretty much every University and electronics-related or materials-focused corporation in the world because of its incredible promise as a thin, incredibly strong, highly conductive material that could, among other potential veins of exploration, replace silicon as the foundation for the next era in electronic innovation.
What does this “tiny” company have to do with graphene? Here’s how the ad puts it:
“… most amazing is that one tiny company holds the most important patents for producing this material.
“Right now, Fortune 500 companies are lining up to get their hands on it… and roll out these new batteries in their next product lines.
“Imagine what this could do for a company like Samsung, for instance, if they suddenly were the first company to release a cell phone that didn’t need charging. Or a television that didn’t need to be plugged in.”
The promise, we’re told, is the graphene-based super-capacitor.
No, not Flux Capacitor — those are still a few years off, I’m afraid, and we’ll have to see if there are any DeLoreans left by the time that advancement happens.
Super capacitors are, as you might imagine, really powerful capacitors — a capacitor is sort of like a battery, but it’s much, much better at really fast charging and discharging and much, much worse at storing a large amount of energy in a small space, with energy density that’s far worse than a conventional battery. Part of the promise of graphene is that it might enable the creation of capacitors that are as energy dense as batteries, which would make recharging almost instant compared to current battery technologies. The ad quotes a recent Slate article about the potential breakthrough, that article was based on the “accidental” discovery of a cheap way to create graphene in a DVD burner. Check it out if you want a quick overview of what the reality of this technology is, but they don’t, of course, discuss our “secret” company in that article … for that we need to turn back to the ad and sniff out some more clues …
“… from our research, one particular company is far and away the leader in developing patented new graphene-based products.
“This doesn’t come as a surprise to anyone who’s followed this firm’s ascendance as we have.
“It has already successfully commercialized some of the world’s most advanced graphite-based energy storage systems.
“For example, thanks to one collaboration, its patented power products are found in 70% of fuel-cell based vehicles and more than 50% of buses worldwide…
“…it has the pole position in producing the next generation of graphene-based batteries that are going to transform the world.
“It already has the customers. All it has to do is roll out its new line and begin raking in the profits.”
OK, we know it’s never that simple — but still, sounds impressive. And a few more clues:
“Batteries are just the start for this company’s domination of the exploding graphite and graphene markets…
“… one of its most useful qualities is its ability to dissipate heat, which is greatly needed in all electronics.
“This company’s new products dissipate heat better than any others, which is why the biggest brands worldwide are all clamoring for its products.
“Apple, for instance, has begun using early versions of its heat-dissipating technology in iPhones and iPads.”
OK, so they have all these patents on graphene stuff and they’re practically ready to revolutionize the battery world if they just “roll out” their new line, and they have Apple as a customer? Geez, can’t you just feel your wallet expanding?
Well, thankfully we’ve got some time before this company revolutionizes everything — here’s how the ad puts it:
“Naturally, companies are taking some time before switching over from all their traditional batteries and components…
“It’s the reason you haven’t heard about this yet.
“And it’s also the reason that you can make a killing on this stock right now before the big switch happens.
“But if you wait on this situation, you are likely to miss out on one of the biggest stock stories of our time.
“Because a new technology like this… one that completely transforms multiple multibillion-dollar industries… has the power to reward shareholders like no other.”
Right. It’s not that they can’t get the science right yet or that it takes five years or ten years to develop these new products and make the technical and manufacturing breakthroughs to enable these products, it’s that they’re “taking some time before switching over.” It’s all in your perspective, I guess.
So how about a few more specific clues about the company being teased?
“Right now the company’s in the middle of a mammoth build-up in preparation for the huge demand coming in from companies all over the world.
“But why specifically are all these Fortune 500 companies turning to just this one?
“Because, as I’ll explain in a moment, it holds over 230 major patents in these crucial technologies. It is the gatekeeper.
“If major electronics producers want to keep going faster and smaller, they will need the help of this company.
“If automobile companies want to capture the multi-trillion dollar electric car market, they will need the help of this company.
“It has nearly doubled its staff of scientists as management continues seeking engineers ‘focusing on the development of novel graphene materials for a variety of applications.’
“It’s already locked down production agreements with the biggest electronics giants, including Apple, Samsung and Sony.
“And company executives, meanwhile, see this as the perfect buying opportunity. They just finished a 10 million-share buyback – and then promptly doubled down on 10 million more.”
That’s more than enough to feed into the Thinkolator, but just in case we do get a few specific clues for confirmation:
“The Vanguard Group owns over 6 million shares. Janus Capital has 4 million. Wells Fargo bought up 3.3 million.
“In fact, institutions now own 96% of this company’s publicly traded shares….
“the company holds a whopping 230 patents overall. And in recent years, it’s made four strategic acquisitions, and received seven R&D 100 awards…
“This small company ranked ahead of General Electric, ahead of Sony, ahead of Apple in its lineup of intellectual properties.”
And we’re told that it’s already profitable, with sales in over 70 countries from 19 manufacturing facilities, with 2011 sales of $1.3 billion and a PE ratio of 8.5, with gross profit margins of better than 20% five years running … and a share price of somewhere near nine dollars. So who is it?
Well, the name might sound familiar if you’ve been aboard the good ship Gumshoe for very long — this is Graftech (GTI), and the Oxford Club pitched the same stock last November with a different ad campaign. Graftech is an engineered graphite company, creating a variety of products from natural flake graphite.
Unfortunately, this particular investment in the future of graphene also means you’re investing in the present of steel, since that’s the major customer for their graphite products right now … so the stock isn’t at $9 anymore, it’s come down to about $7.50 in recent months. Largely that’s because they have had a couple weak quarters for graphite electrode demand (that’s their major product, it’s used in steelmaking), and because they’ve downplayed expectations a bit for this year because of the softness of the steel industry.
They are profitable, but they’re not really growing at the moment — their engineered products division is growing nicely, at a double-digit pace, but the core industrial division, which sells electrodes to steel mills, is not consistently growing and has been under pressure. Engineered products is only about 20% of sales, so you can see where the concern comes in — we can pitch it as a graphene company for the future, perhaps, since they are working on new applications, but we also have to pitch it as a stock that for the foreseeable future is very much dependent on graphite … mostly for steelmaking, but also for batteries and fuel cells and for heat dissipation shields in electronics, all of which are important and perhaps exciting growth areas, but none of which are going to “kill” batteries or be revolutionary enough to make headlines. Whether or not their work with graphite-based specialty materials for fuel cells and their flexible sheets of graphite for automotive and electronic applications and their other current core products mean they have a leg up on the “leap forward” technology of graphene is another matter, and one I’m not qualified to judge. They do
And they do have decent insider holdings and a pretty concentrated group of mutual funds that hold major positions (mostly from Janus, Royce and Fidelity) … but they are also one of the most-shorted stocks on the exchange, with 40% of the float sold short (they have a short ratio of about 16, meaning it would take 16 days of normal trading volume to “cover” those short positions).
A stock with a large short ratio like this can always turn into a “short squeeze,” where the shorts are forced by rising prices to cover their positions, buying the stock and forcing it up higher and forcing yet more shorts to cover. But typically that happens because of sharply better news from a company, or a big spate of buying for some fundamental reason — it’s hard to see that happening really soon for Graftech.
I’d be a lot more comfortable with Graftech than I would with most of the junior “graphene” names that get touted, or the emerging graphite miners, but that’s largely because they’re fairly large, stodgy, profitable and well-established — I’d take any prediction that GTI will climb dramatically on the strength of its graphene efforts over the coming two years with a bit of a grain of salt, if they rise rapidly in the short term it will be because global steel production booms again. There is growth in their other segments, but they’re so small that they will probably have to grow very fast for several years to make up for softness in the steel industry.
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