“The California Effect: Make 900% Thanks to the Green Mafia”

By Travis Johnson, Stock Gumshoe, November 18, 2009

Well, I promised to stray from all the gold talk for at least one day, so today we’re digging into a teaser from Michael Robinson for his BreakAway Investor — from my limited experience in dealing with Robinson, who took over this letter not that long ago, I can tell you that he appears enraptured with conspiracy stories … and this, of course, is a good one. Here’s how he gets our attention:

“The $80 Billion ‘Green Boondoggle’

“A militant environmental group is saddling our country with the most expensive hoax EVER…

“Their next move will infuriate you — yet it could make you $110,000 richer starting on Nov. 18”

Hey, November 18 — that’s TODAY! Better get cracking. What the heck is he talking about?

Well, to shorten a long story, as background he tells us that California is the breeding ground for most of the environmental initiatives we’ve seen in the last forty years — and that those initiatives made huge profits for some companies. The example he keeps going back to is automobile emissions, with the rules that started in California in the 1970s and 80s favoring small car makers, which brought huge profits for Toyota at Detroit’s expense (he didn’t mention OPEC or the oil crisis, though that certainly played a huge role as well — despite the fact that they weren’t entirely California’s fault).

But the vivid language continues …

“… the policies of a small few — a militant quasi-governmental group bent on “greening” the country — are costing you and me, and Americans just like us, billions of dollars…

“These guys are tipping the scales of industry whichever way they like…

“And the ‘green’ initiatives they’re pushing are going to ruin the quality of life in the U.S. and bankrupt hardworking American citizens.

“But that’s just the half of it.

“The worst part? Short of armed revolt, they can’t be stopped.

“This ‘Green Mafia’ has placed their cronies in high places — and used their influence to extort big business to go with the flow — OR ELSE.

“But while they consolidate power on the premise of pseudoscience — they are also creating gaps in the market that you can exploit for thousands of dollars — if you know where to find them…

“For instance, right now they’ve created a moneymaking opportunity like you’ve never seen before… Their latest initiative could give you the chance to turn $15,000 into over $110,000 or more in a few short months.”

Criminy! $15,000 to $110,000 sounds pretty decent to me … just ignore that “the chance to” and “a few,” and you can lean back and feel the warm breeze as you’re massaged on the deck of your new yacht. Preferably wearing one of those great helmets with two beers and a straw built in, since I picture that’s what the genuinely wealthy do when they no longer care what anyone else thinks of them.

But I digress. I know, you’re surprised.

Robinson has identified one company that he thinks will benefit from the latest green regulations in California (or as he calls it, “Californiastan”) … here are some of the details in the tease:

“The biggest threat to the average American’s way of life doesn’t come from a cave in Pakistan… or the Kremlin. Or even North Korea.

“It comes from this building — the home of the California Energy Commission, the quasi-governmental group that has driven every one of the environmental policies I mentioned before.

“These regulations start as seeds in the deep dark basements of the CEC building — and they quickly spread to the rest of the country….

“And as unlikely as it seems, it’s what is about to give you the chance of a lifetime in the stock market.

“You see, as soon as November 18th there will be celebrations inside this building when the California Energy Commission adds this addendum to Title 20, Sections 1601-1607 of the regulatory code.

“And as I’ll show you, when this intrusive mandate takes effect, it will only be a matter of time before it spreads to the rest of the country.

“Of course, it will also only be a matter of time — maybe just a couple of months — if this sea change all but certainly sends one company’s stock up as high as 900% – or more, as I predict.”

“All but certainly” — like that one, too. Sounds much better than “maybe.”

But now we’re getting into some specific clues, the California Code and the regulations that might be changing as soon as today. What are they about?

The company-specific clues come next, thankfully …

“If you pulled down the small two-lane street heading to this company’s headquarters, you wouldn’t think it was on the verge of market domination.

“The quiet, leafy, two traffic-light town tucked between mountains in a rural hamlet in the northeastern U.S. looks far off Wall Street’s grid….

“It’s not some Johnny-come-lately outfit or risky startup IPO.

“It’s been doing the same thing for 154 years — since the Civil War. It’s occupied this same quiet corner of the Earth since then, save for a few upgrades to the building that houses the essential science it produces.

“And it’s been successful enough in recent years for The New York Times to call it ‘vibrantly alive.’

“Just last year The Wall Street Journal called it a ‘rare bright spot in the technology industry.’

“Its sleek-looking black glass campus stands out like a sore thumb in the quaint town it calls home. But behind those dark windows, it’s producing some revolutionary technology.

“It’s a technology that will become essential to every American home in the next year or two.

“You see, on November 18th, the California Energy Commission is expected to pass an addendum to Title 20, Sections 1601-1607 of the California regulatory code. If it does, it will essentially ban a major household appliance that’s in over 50 million homes right now.

“When that item is banned, Americans will be forced to flock to the alternative technology in droves.

“And it just so happens that this company is the No. 1 producer in the world of the essential component of this new, alternative appliance technology.”

So who is this?

Believe it or not, it must be … Corning (GLW) [Click here for a free instant trend analysis of GLW]

This is the former Corning Glassworks, which is indeed situated (and named after) the bucolic town of Corning in the hills of Western NY, a crucible for advanced technology and also, for a few years, a casualty of the dot com bubble enthusiasm for all things fiber-optic. They’ve also been teased by other newsletter editors before, most recently by Byron King in the Summer of 2008 for the “tailpipe riches” to come from Corning’s advanced diesel emissions filters.

And that’s one of the beauties of Corning — you can tease them as a life sciences company, a fiber-optic cable company, a “green” air cleaning company, or, as in this case, a maker of advanced glass for LCD displays.

Yes, that’s the “appliance” Robinson seems to be talking about here — the television. You see, that proposed rule from the California Energy Commission is intended to bring some sort of consistent “Energy Star” type of efficiency standards to television sets, and probably to restrict the sales of inefficient televisions in California stores. You can see the details of the proposed rule here on the Commission’s website.

There is a catch, though — the way I read the rules, this will not cause any immediate change: “The proposed standards have no effect on existing televisions. If approved, they would only apply to TVs sold in California after January 1, 2011.”

People won’t be required to buy new televisions, nor will they be required to do anything special to the TVs they have — it’s just that they’ll be pushing manufacturers to make more efficient TVs. In fact, part of the impetus for this legislation is Corning’s success — if they hadn’t been part of the effort to make huge televisions cost-effective through their advanced glass technology for the screens, then we’d still mostly be watching tube televisions, which are much less energy intensive (in part because they’re much smaller). But yes, LCDs and other big screen TVs more energy than older TVs, for a number of reasons, and this is a move to try to make them more efficient and, from California’s perspective, modernize the standards.

California’s regulators claim that there are already lots of sets that meet the new standards: “The technology to make TVs more energy efficient is available now and currently used now in a variety of models. As of late-September 2009, more than 1,000 TVs already meet the 2011 standards.”

So perhaps not that revolutionary — but I can see Robinson’s argument underlying this, which is that we’re at the cusp of new regulation that will probably sweep the country, and lead to more restrictive standards for televisions in general. The concern I have with this argument is that I don’t see how it leads to more sales for Corning over what they would normally be expected to do anyway — in fact, I’d argue that probably emerging market demand for televisions will drive lcd glass consumption at least as much as any environmentally-driven upgrade cycle.

Personally, I can’t see how this will dramatically change Corning’s business or increase the number of television sets they sell — there’s been such a boom in new LCD and plasma tvs over the last couple years in conjunction with HD and digital conversion that I’d assume most “upgrade” customers for televisions are a ways from their next upgrade cycle for television. The demand was brought very aggressively forward over the last several years, and we’ve already seen that what drives customers to upgrade TVs is size and picture quality, not a concern about whether the television consumes 4% of their household electricity or 6% (I’m making those numbers up, but I believe they’re in the ballpark).

So this part of the ad seems disingenuous to me: “When that item is banned, Americans will be forced to flock to the alternative technology in droves.”

The way I read it, they won’t be forced to do anything, and old TVs won’t be banned or taken from your home (that would really spark a revolution — folks might be upset if you take away their guns, but I imagine they’ll shoot you if you try to take away their TVs). If someone buys a TV in California after 2011, it may be a more efficient one than it would otherwise have been … but whether it’s more efficient or less efficient it’s going to be a flat screen TV, and Corning owns about half of the market for glass for those TVs. And no, from what I can tell the glass isn’t what makes the TV more energy efficient, the primary energy consumption is for the backlight, Corning’s specialty is the glass, not any of the energy-consuming technology in a television. Not that they couldn’t come up with something, perhaps, but it’s not one of their core areas of R&D expertise.

But, that said, I’m pretty sure this is Robinson’s stock — it has been around since the Civil War (though you’d be going back 158 years, not 151, to get to their founding, and they didn’t move to Corning and take the name for another decade or two after that). They do have a sleek black glass headquarters building in the foothills of the Allegheny mountains (and a cool glass museum, by the way, if you’re ever in the neighborhood). And yes, it has been called “vibrantly alive” by the New York Times [that was in 2005, when the LCD glass business was really starting to boom]; and “a rare bright spot” by the Wall Street Journal [that was back in April, when we still thought the world was ending but Corning was rehiring some idled workers and doing OK with LCD glass sales again].

I like Corning as a company — they’ve shown a real ability to survive some very tough market dislocations and focus their R&D efforts over the years, and they make money, pay a small dividend, and have no net debt. They’re also cheaper than some of the larger and more broadly diversified businesses in similar sectors, like 3M, but that’s probably because investors are quite aware that they’ve historically been very dependent on a couple product lines that can lead to boom/bust cycles.

Analysts right now expect Corning to grow sales about 10% next year and earn about $1.55, which at their current 52-week high price of $17+ gives them a forward PE of about 11. Not unreasonable, I’d argue, but I have a hard time seeing Corning giving you 900% gains anytime in the next few years … maybe it’s just the skeptic in me, but this is, despite certainly some opportunity for growth, a very large $25 billion company — it could quite possibly be a very good investment even at this price for the years ahead, but it’s really hard for a company this massive to go up even 100% in short order.

What do you think? Like Corning’s diesel filters, glass sheets, or life sciences technologies? Expecting home runs from efficient TVs? Or is it a bit too pricey for you at the highs for the year?

And we haven’t gotten many reviews for BreakAway Investor since Robinson took over, so if you’ve been a subscriber please click here to let us know what you thought. Thanks!

P.S. Robinson also spins his previous tale for us again in this ad letter, the one for the “shadow syndicate” — looks like that’s the same company he teased us with before, I wrote about it back in October and you can see the details here if you like.