Today’s article was carefully harvested from the bones of an older Friday File, with some updates and additional thoughts thrown in.
The pitch being covered here was that Andy Obermueller had identified the “Google of Energy Storage” and some other interesting battery-related stocks — I first covered the ad in this space back in February of 2016 for our paid members (that’s where most of the article below comes from), but I’ve continued to see a similar ad every few weeks this year… and now that Game-Changing Stocks has a new editor at the helm, they’ve slightly repurposed the ad to focus more on Elon Musk and jazz it up a bit, but the teaser pitch for the two top companies in the ad still looks word-for-word identical to me.
What is below is mostly unchanged from last year… which is a nice reminder that no, these ads do not always represent the very best idea from the current writer/editor of the newsletter, they often represent just a rehash of what the marketing folks know will work to lure in subscribers. The words that used to go out over Andy Obermueller’s signature have not changed, but now the ad is signed by current “Chief Investment Strategist” Genia Turanova. (I don’t know whether the departure was voluntary or not, but Obermueller has moved on, it appears, to start a faith-based investment newsletter called Saving Grace.)
So what’s the story?
Game Changing Stocks is touting a bunch of energy storage stocks that they think will benefit from the huge push toward better batteries and other storage technology, spurred by the well-publicized Gigafactory that Elon Musk’s Tesla is building to create enough lithium battery supply for their future cars and for other applications… like the Tesla Powerwall home battery that they’re selling (just as sleek and shiny as the cars, naturally).
This appears to be right in the teaser wheelhouse of “hot stuff” still — so many newsletters continue to tout the resurgence of solar, and storage has a huge role to play in the future of solar energy, so I expect we’ll keep seeing these solar/storage ideas pitched in the months to come (yes, even with low oil prices). And it’s not just because Elon Musk is smushing Tesla (TSLA) and SolarCity (SCTY) into one big happy family.
I’ll spare you all the “power storage will be huuuuge” stuff, which we will stipulate (storage and efficiency are the two keys to reducing reliance on coal and gas for electricity), and move on to the specific ideas:
“Stock #1: 1,000% Gain from “The Google of Energy Storage”
“My first pick is perfect for conservative investors.
“It’s ‘The Google of Energy Storage’ and offers an incredible opportunity: the chance to make 1,000% gains by investing in a well-established industry leader.
“It’s the global leader for industrial applications. It already has facilities in 20 countries, and customers in 120.
“Given its breadth, it would be essentially impossible for the energy storage market to take off without this company soaring with it. After all, with a 23% market share, it already dominates the market.
“As I said, the U.S. energy storage market alone is set to soar 1,100% over the next four years. This company is the perfect way to capture that growth. If it does nothing more than rise with the tide, it could deliver quadruple-digit returns.
“And that’s not even counting any growth it gets from its operations in other countries….
“What’s also great is that almost no one knows about this company. Despite growing its net income by 483% over the past decade and watching its share price quadruple, it’s still completely under the radar.
“Only about 317,000 shares trade hands per day — which is how many shares Apple trades every eight minutes.
“I’ve tagged this company as an immediate ‘buy.’ As the energy storage revolution unfolds, I think it’s only a matter of time before its share price takes off… and the company becomes a household name.”
It always catches my eye when you’re dealing with an investment that someone touts as “conservative” and that has relatively low trading volume and probably not much of a following, but with some growth and potential for more growth… so that gave me enough curiosity to put some time into firing up the ol’ Thinkolator to ID this one. Obermueller’s hinting at: EnerSys (ENS), which is indeed an industrial battery company.
EnerSys does claim facilities in 20 countries and customers in 120, and they do claim to have 22% market share in their core business (industrial lead acid batteries, mostly for forklifts and backup power systems). As of this year they say it’s 22% of a $9.8 billion business, a few years ago it was 23% of a $8.8 billion business, so it’s been pretty consistent and growing (albeit slowly). Their business is about half “motive power” and half “reserve power” — the motive power stuff is almost entirely from battery-powered forklifts and similar industrial vehicles, the “reserve power” is primarily (about 2/3) for telecom and “uninterruptible power systems” customers (ie, hospitals, data centers, folks who have to have backup power no matter what).
Their most direct “pure play” competitor, Exide Technologies, filed for bankruptcy a few years ago, so there’s no great comparison we can make with other firms — but considered on its own, ENS looks pretty good. They have not been showing much growth over the past couple years, but they have been growing a bit and they have consistently been nicely profitable. And from what I can tell by browsing their charts going back a ways, their cash performance (free cash flow) has been stronger than their earnings performance, which is good, and ENS right now trades at only about 10X free cash flow.
So on those metrics, it’s an appealing company… when I covered this in February it had just come down a bit, mostly because of lowered expectations for growth, but it bounced back pretty sharply from the February blahs and has beaten the market since then (it’s up about 20% since I first saw the ad, versus 10% for the S&P 500).
This is, particularly with their motive power division (forklifts), presumably a pretty cyclical business (you don’t buy a lot of forklifts if you’re not building new warehouses), so maybe that has something to do with it. They are not “just” an industrial lead acid company, they also have divisions that make little lithium batteries for medical devices, and very weight-sensitive batteries for spacecraft, but it’s the industrial stuff and the banks of telecom batteries and things like that which really move the needle… and that needle moves fairly slowly.
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Analysts estimates were drifting lower for EnerSys back in the Winter, but they’ve been drifting back up again in recent months (which is probably the main reason the stock had a nice bump up a couple months ago). Analysts see 10% growth in earning this year (after last year had a decline in earnings), and they have expectations of 16% growth over the next five years — that’s obviously a guess on their part (five year growth estimates are never reliable, but they give, at least, some picture of consensus growth expectations), but if it’s close to reality then the stock’s valuation (PE of 13) is at least reasonable and maybe cheap (that’s a PEG ratio of about 0.9). Even if you discount the growth expectations, that’s not bad.
Will it work out? I certainly have no idea, but they are, at least, a large player in industrial energy storage, and they have a strong brand (a bunch of them, actually) and a good long-term record of increasing cash flow and earnings over the pat 15 years or so. They also have a strong balance sheet, with a reasonable amount of debt that they should be able to keep servicing and rolling over without a problem (given their consistent cash flow generation).
Unlike Andy Obermueller, I would be shocked if EnerSys went up by 1,000% anytime in the next 5-10 years, and they’re not a company that beats earnings dramatically and shocks the world… but I can see some logic in assuming that it will rise in value as energy storage continues to be a growing priority. They do not have a particular presence directly in things like solar energy storage, or any big projects for utility-scale energy storage, but that’s probably a good thing for conservative folks, that’s where a lot of folks are chasing big dreams with uncertain returns. Selling forklift batteries and uninterruptible power systems for data centers seems much more “vanilla” and less volatile. I’m no expert on the company’s potential, to be sure, and I don’t own shares, but given my current tendency to be a worry wart and find conservative ideas appealing, I’m going to keep an eye on EnerSys.
For a bit of perspective on the industrial battery business in general, I found this presentation from an industry group interesting as well — not quite up to date, but it gets into some forecasting and some perspective about “new technologies” and their impact on business for companies like Enersys and Johnson Controls (JCI) who have large market share in the lead acid battery market.
How about one more from Obermueller? This one’s a bit wilder:
“Stock #2: A Speculative Pick That Could Deliver 10,000% Gains
“This investment isn’t for everyone. It’s speculative and could be a rollercoaster ride. But if you’re looking for a thrilling, huge-potential stock that gets you in on the ground floor of the energy storage revolution, you’ll want to buy shares immediately.
“Nobody needs energy storage more than our soldiers — especially when they’re out in the field.
“When you’re in the middle of the jungle, you can’t just plug in your radio or GPS.
“Traditionally, what they’ve done is charge the batteries in their electronics by drawing from a larger ‘source battery.’
“Unfortunately, most source batteries the Army uses aren’t rechargeable. One charge is all you get.
“That’s where this tiny $1 company enters the scene…
“It has a groundbreaking rechargeable battery system. It fits right into a soldier’s vest. All throughout the day, a radio or GPS can draw power from it.
“According to Major Mark Owens, in early tests soldiers have loved it. They are saying that these battery devices are ‘some of the best pieces of equipment they’ve ever seen.’
“This company makes several other products as well, including ultra-light submarine batteries, a battery system with eight times the charging cycle over a typical battery, and more.
“The military has taken notice, and is already placing orders… which are having a huge impact on this company’s share price.
“Last year, for example, the company announced a $2 million order from the Army. The shares soared 50% in a day.
“That’s right — a tiny $2 million order triggered a 50% jump.
“As battery storage gains traction… and as this company’s system are deployed… there’s no telling what could happen to its share price.
“Like I said, it’s a speculative play. But just a few hundred dollars has the potential to change your life.”
Laying it on a bit thick, no? There are a bunch of companies working on “Soldier Power” projects designed to help bring down the weight and variety of batteries that a soldier has to carry, but the best match here is a company called Arotech (ARTX), which was a $1 company for a while (and a $5 company) but is now priced at around $2.80 a share, for a market capitalization of around $75 million. It became an exciting momentum stock for a little while when attention on them rose back in April, but it lately has come back to earth and is pretty close to where it was when we first looked at it in February.
They are primarily a military and aerospace contractor, they do sell the SWIPES (Soldier Worn Integrated Power Equipment Systems — everything must have a cool acronym), which is basically a vest with integrated rechargeable batteries and connections for all the radios, GPS units, scopes and gizmos a soldier needs to carry. That is the one that was lauded by Major Mark Owens, who worked on the program a few years ago when it was launched — maybe he still does, I don’t know, but it hasn’t generated a lot of press since 2012 or 2013. And yes, they also sell batteries for submarines and other aerospace and military applications.
They’ve got an investor presentation up on their website that you can see here, so that’s worth a scan if you’re interested in their prospects — the SWIPES vest no longer makes it into the presentation as one of their growth projects, but not much in this military procurement landscape seems all that predictable to me and they do have other power control and hybrid power supply projects for the military (which, combined are probably about 20% of revenue — it’s not their main focus).
They are profitable but have not been growing recently, and they seem to have a fairly steady backlog and have announced orders several times this year for both their training and simulation business and their power management business. The stock has had a few big swings in the last five years or so, I don’t see any reason why they should suddenly see the kind of revenue growth that gives you 10,000% returns (right now they’re talking about cutting costs and operational efficiencies, which is not what you hear from companies that are expecting sales to skyrocket), but neither is there anything that looks disastrous in their books. They are forecasting adjusted earnings of between 18 and 23 cents per share this year, so that’s not terrible for a $2.80 stock even if they’re not growing fast (and they do think growth is resuming).
I don’t know if they stand out as being particularly unique in the “military battery” business, there are a lot lot lot of small defense contractors and subcontractors, and Arotech is not the only one focused on power systems… but it is one of the few publicly traded ones.
Can’t get excited about that one, I’m afraid, even with both StreetAuthority and Money Map touting the shares in pretty widely-distributed ads (Kent Moors has been pushing this one, too, you can see our piece on that here) — it looks pretty reasonable, but will probably also be very dependent on fluctuating project funding and, perhaps, fluctuating newsletter attention… so I’d want to really understand their backlog and their future prospects. Maybe when you check it out you’ll see something exciting — if so, I hope you’ll share your thoughts with us with a comment below.