“100% Green Super Material — Invest in the Radical MIT Startup”

by Travis Johnson, Stock Gumshoe | August 27, 2008 9:42 pm

This ad comes to us from James DiGeorgia[1], who apparently ran a newsletter called 21st Century Investor and sold that service a while back — this ad is for a new service that he’s launching called SuperStock Investor[2]. He’d like $79 from you for your charter subscription (though of course, it has a “value” of $197.50, if they do say so themselves).

And he’ll tell you that the special report he’s hawking with this teaser is itself worth $79 — must be a really lovely report, I imagine. It’s called “The Best Way to Profit From the BioPlastics Revolution.”

Maybe this will turn out to be a fabulous newsletter, maybe not — hard to say at this point. But you needn’t try the newsletter if you’re just interested in finding out the name of the company behind this “super material” — for that, you can count on your friendly neighborhood Stock Gumshoe.

So what clues are we given by the kind Mr. DiGeorgia as he whets our appetite?

We start with “validation” from a major news media source, in this case Marketwatch …

“CBS Market Watch recently told investors:

“‘This is not just an R&D lab experiment… you can play this one with confidence.’

“Not only that, they predicted that this company could be ‘leaders on the ground-floor of an entirely new industry.’ And that their ‘market disruptive technology…’ has ‘tremendous upside potential.’

“Good news for you is: It just went public!

“And the customers are lining up. In fact, just this past Christmas, Target was their biggest customer. It began using this new Super Material to create 100% biodegradable, environmentally friendly greeting cards!”

Of course, those quotes from the Marketwatch story (it hasn’t been “CBS Marketwatch” for a few years now) are not an endorsement from Dow Jones (which now publishes Marketwatch), they’re just quotes from an analyst who covers the company — and who likes it, clearly.

If you’d rather read that article and hear what Marketwatch has to say[3], you can go straight there[4] if you like. I’ll be crying in my coffee[5] over the fact that my beloved readers ditched me before I was done pontificating, but that’s OK, you go right ahead. Marketwatch will tell you the name of this company, too, and share a bit more info as well.

Only true loyal friends of Gumshoedom left now, eh? Well, for you, we’ll proceed.

Some more clues for you:

“For example, this new Super Material is far more versatile, flexible, stronger – and above all cheaper to produce – than almost all of its dirty polluting industrial age competitors.

“What’s more, this new Super Material promises to:

“Reduce toxic chemicals in the waste streams by up to 80%!

“Give off 66% less greenhouse gasses than its competitive materials!

“Help clean up the oceans, preserve the forests, clear our darkened skies, and green the industrial landscape!

“Increase our energy security by reducing our dependence on Middle Eastern oil[6]. (In fact, the only oil used in the production of this new green material is in the transportation of the raw goods!)

“But best of all: It promises to drive down the costs of many of your everyday appliances and technical gadgets. While prices of oil, copper[7], lead and zinc[8] are going through the roof, and making all kinds of things more expensive, this new green Super Material is getting cheaper and cheaper, and promises to drive down the costs of all types of products from Chinese toys to kitchen appliances… from cars to computers… from toilet seats to Tupperware…”

Not bad! But we need some more details to firm this up …

DiGeorgia compares this to some past “Game Changing” developments that involved new materials and similar kinds of innovations …

“For example, in the fifties, the electronics industry was completely turned upside down by a game-changing technology. At the time the industry was dependent upon the vacuum tube. But vacuum tubes often overheated and burnt out. While the leading vendors worked on ways to enhance the existing tubes, a small group of scientists at Bell Labs research went in an entirely different direction. They focused on semi-conductors like silicon. Within a year the transistor had been created: An event that turned the vacuum tube industry on its head and sent many investors broke, while at the same time made a handful very rich. Intel was born. And within a decade this company had effectively wiped out all the leading vacuum tube vendors from Sylvania to RCA.

“The same happened again when Owens Corning created fibreglass and almost wiped out the entire wooden ship building industry. It happened again in 2001 when the digital photo revolution dealt a fatal blow to Polaroid: the age-old company who’d given us instant pictures.”

So, like many of the growth stock advisors out there, it’s pretty clear that SuperStocks will be looking for companies that have that one-in-a-million potential. That means there will be a lot of duds, if they’re like other peddlers of “story” growth stock ideas, but if they’re good and lucky maybe they will get a few of these thousand percent+ gainers. As with most services, the hope is that the two or three hugely successful picks will be so dramatic that the many mediocre ones whose stories don’t pan out can be ignored. Certainly there are several stock newsletters that have fine records using a similar strategy, but it can be very bumpy.

What, then, is this new material company that might be the next highflier?

Well, it’s possible that this ad has made the rounds before (if so, I missed it), because though it’s claimed as a “recent” IPO[9] it’s been public for about a year and a half. I guess, in the grand scheme, that is fairly recent … especially since there have precious few IPOs since then.

The company being teased here today is …

Metabolix (MBLX)

The company was indeed founded with MIT technology — it licensed its first technology from MIT at its founding in 1993, and has bought other technologies along the way, including one from Monsanto. They’ve also had some joint ventures with Archer Daniels Midland to commercialize production, so they aren’t just working on R&D, this is an actual producer of bioplastics.

The main product they have, Mirel, is actually included in the list in the teaser — from what I can tell, Mirel is their brand name for a whole line of plastics that are made from polymers generated by genetically engineered microbes and plants. Interesting stuff, and their website has some good background and explanation [10]if you’re like to dig in, but I’m certainly not competent to judge their scientific prowess in any way. Their most recent releases have touted a viable new process using switchgrass, so that would be exciting (if switchgrass prices haven’t already been jacked up due to ethanol[11] demand by the time this gets commercialized).

So — bioplastics and “green plastics” are a growing industry, especially with the price of oil and other plastics feedstocks so high (both financially and environmentally) … we’ve seen some bioplastics companies teased before and I have very little knowledge about which of them might be more successful than others. The hurdle so far seems to be that bioplastics are still at a significant cost disadvantage to traditional petroleum-derived plastics, so either bioplastics have to get cheaper or oil has to get more expensive for the market to swing powerfully toward bioplastics — unless government mandates or personal environmental preferences increase demand for these products even if they cost more, which is certainly possible (and must be a key part of their business plan, at least for the near future).

It is certainly interesting stuff, the only caveat I’d share is that for any new technology that brings a sea change, there are a hundred forgotten competitors to the companies that actually became today’s leaders. We might imagine, for example, that there were many other companies looking for alternatives to vacuum tubes back in the dawn of the transistor age in the late 1940s, when Bell Labs is credited with that invention, and if we want to push it along to the dawn of the integrated circuit and semiconductor we might imagine that similar work was underway elsewhere — Robert Noyce and Jack Kilby weren’t the only folks working on integrated circuits, and Intel and Texas Instruments weren’t the first or the only companies in the business. It seems obvious in retrospect, but the winners and eventual leaders were probably not that easy to pick out of a lineup 50 years ago.

Metabolix might indeed be the “leader on the ground floor,” as some believe, but it’s also possible that this isn’t the defining moment in the development of bioplastics — it might be an entirely different company that gets looked at 20 years from now as the Texas Instruments or Intel of the bioplastics revolution. That’s both the fun and risky part of betting on emerging technologies … the technology might not emerge as expected, or it might emerge from a different R&D lab, but if you are right (and luckily), and have the stomach to hang in for some wild bumps in the ride, there’s always that small potential that you’ll be one of those who got the legendary 10,000% returns.

Nothing wrong with gambling[12], as long as you accept that’s what you’re doing. I have nothing bad to say about Metabolix, the price is certainly more appealing now than it was shortly after it went public — it traded around $25 for much of last year, and is now going for a bit under $11 ($10.85 as I type this). It is, of course, not making any money — they are expected to lose about $1.50 a share this year, though analysts are predicting a loss of only fifty cents a share next year. They do have sales that are growing very quickly at well over 100% annually (though the shares still trade for more than 100X sales, so clearly this is being valued on future potential, not current or near-future sales). And they have buckets of cash still, more than $4 a share in cash, so it seems unlikely that they’ll be running out of money anytime soon. It’s always dangerous to rely too much on the cash position when putting a value on a startup like this, or looking at metrics like book value, since of course they’re going to spend that cash and they’re certainly not going to give it to you … but it’s quite positive that they’ve got a great balance sheet and shouldn’t need to beg, borrow or steal to keep the business going (they have no debt).

As to what the future holds, and whether or not you’ll want to own shares in Metabolix … well, for that you’re on your own. It’s a real company, with a real product that people are buying, and it is in a growing industry … that’s not enough on its own, but it’s a start — if you research the company and get comfortable with their prospects, feel free to share.

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