by Travis Johnson, Stock Gumshoe | February 21, 2011 12:11 am
Happy Holiday! It’s President’s Day here in the U.S., and Family Day up on the Canadian side of the border, so the markets and interwebs are pretty quiet. On this placid day, I thought you might be interested in a look at a teaser I thought I had shared with everyone before — turns out, I included it in a Friday File over on the Irregulars site but it hadn’t yet graced StockGumshoe.com. So here goes!
The teaser is from Hilary Kramer for her Game Changers newsletter — and it’s all about bio plastics, the pitch this time around is that the flowing waves of corn on the prairies are about to revolutionize the world, or at least the massive plastics industry.
And while the pitch is a little different, two of the stocks that she teases this time around were also teased back in December in her “predictions for the year” ad campaign about “super stocks.” This bio-plastics one appears to be the same one she was pitching then (though the share price is down by a couple dollars now), and the “alternative energy” pick also looks like it’s probably the same one (about energy efficiency as the next big wave, not solar or wind).
So things have changed a little bit in the time since I wrote to you in December, but I can at least share those thoughts with you again for your holiday enjoyment — what follows originally appeared in the Friday File on December 23, and has not been updated or edited:
“Super Stock # 1
“The Stock of the Decade
“The best-performing stock of the last decade was Green Mountain coffee. Virtually unknown except to coffee connoisseurs back in 2000, the stock rewarded early investors with a mind-boggling 9,266% gain.
“When we look back 10 years from now at the best stocks of the last decade, you may find our little-known Super Stock #1 at the top of that list.”
This off-the-radar company is at the forefront of a massive, cutting-edge breakthrough that will revolutionize the third-largest industry in the U.S.—plastic….
“Plastic, however, poses some serious problems—it takes a lot of oil to make (expensive and dirty), it never biodegrades, it’s difficult to recycle and has potentially negative health effects (BPA being the leading culprit) that are leading to new regulation and restrictions.
“For the last five years, I’ve been closely watching two dozen companies in a heated race to develop a viable alternative. And the winner is now crystal clear.
“This company’s patented technology uses genetically engineered microbes to make plastic out of corn sugar, and the applications are mind-boggling. In a major coup, they just received FDA approval to use their plastic in eating utensils and lids. They will burst onto the scene with their full commercial rollout in early 2011.
“Do NOT miss out on this once in a life-time opportunity to get in on the ground floor of a truly revolutionary company that will deliver mammoth profits for years to come. I’m looking for a quick 70% gain in the next six months, but the sky is truly the limit for this stock.”
So … this is a stock we’ve heard tell of before. The company that’s commercializing this new bioplastic (there are other bioplastics approved for food use, but they have more limitations than this new one, particularly regarding temperature) is Telles, but Telles isn’t a public company — it’s a joint venture between ADM and the company that did the innovation part of the bioplastics development, Metabolix … so yes, I’m quite sure that Metabolix (MBLX) is Kramer’s pick here.
Metabolix is the kind of stock that’s irresistible for teaser-meisters: a fun story to tell that plays on several themes (green consumers, oil shortage, etc), a very new and different technology that has a big potential market, and a company that hasn’t made headlines, so it can make you seem extra-smart for “discovering” it. So it won’t surprise you to hear that I’ve written about it a number of times, most recently about a year ago for an Eric Roseman teaser, when the shares were pretty close to where they are today, and about 2-1/2 years ago for a James DiGeorgia teaser. Kinda making your favorite Gumshoe feel old, actually.
So yes, they are now at a stage when production should ramp up — their first plant has been open for a while now, and they are continuing to press the adoption of their plastic in all kinds of uses, both consumer and industrial as well as agricultural, and from what little I know they seem to have a pretty good argument for their product compared to other biodegradable and “green” plastics using other technologies (PLA, starch, etc.), aside from the fact that they can’t make it completely clear. I have no idea whether this will mean that they can really penetrate the incredibly massive plastics market to a great degree or will remain a small niche product for green-conscious consumers, probably cost will tell that story (Mirel costs at least twice as much as traditional plastic, from what I’ve read). Analysts see dramatic growth in 2011, as Kramer indicates, with revenue going up by about 1,000% — but they also still see MBLX losing about a dollar a share, so I’m not sure at what point their investment in Mirel might start to pay off in earnings, or how their joint venture with ADM is structured. You could, incidentally, also buy Archer Daniels Midland (ADM) shares to play on Mirel, but you’d get far less bang for your buck — MBLX, at a $250 million market cap, is really counting on Mirel to be a big product, it’s far more of a side project for $20 billion market cap ADM.
Next up is her #3 teaser pick, which is on a topic that’s always of interest: smart meters, and the need to better manage our electrical grid as we upgrade it, both for higher efficiency and for the increasing demand, including, though probably not a big deal for at least several years, electric cars. Here’s the tease:
“Super Stock #3
“Forget Oil—Here’s The Next Big Thing in Energy for 2011
“Forget alternative energy, the next big thing for 2011 will be making the existing energy sources we use more efficient.
“Developing alternative energies is expensive and takes years to bear fruit. But according to the U.S. department of energy, increasing energy efficiency could reduce our national energy use by 10% in the next few years and as much as 20% by 2020. No other alternative energy solution can come close to making that kind of massive impact on energy costs and usage so quickly.
“This game-changing stock will be at the forefront of this trend as the dominant player in smart metering. Their smart meters for electricity, water, gas and heat account for 50% of all smart meters installed in US and Canada and 30% worldwide.
“This is no gee-whiz futuristic energy start-up—this is happening here and now with almost $1.7 billion in revenue and nearly 8,000 utilities worldwide using their technology.”
Though she’s understating this company’s revenues (they stand at a bit over $2 billion), but I think it pretty well has to be Itron (ITRI) — the “nearly 8,000 utilities” stuff is a match for what they claim, and they claim 46% global market share globally in smart meters for water and energy. And they did report $1.7 billion in revenue for 2009, so that’s a reasonable match as well.
Itron has been bandied about as a “smart grid” and “smart meter” solution stock for quite a long time, including being a fave of folks like Navellier and Tobin Smith when it was making a big run in the mid-2000s, it had a huge run this decade and hit about $100 before the market crash, and over the last year has been mostly down since a peak around $80 in May — the shares trade for about $55, and though I’ve looked at the stock a handful of times over the years this is the first time that the valuation looks reasonable. I don’t know if the analysts are right about their estimates, but if they’re close Itron is trading at a forward PE of about 12 — not bad for a stock that roughly doubled earnings this year (though analysts do think that next year will be more tepid, with a return to ~20% annual growth after that). So, perhaps worthy of a look now, though I haven’t dug deep to see if there are reasons, other than valuation, for the fall this year — for what it’s worth, the stock has blown out earnings estimates in each of the last four quarters… maybe the financial performance is finally catching up with the story, though it’s important to remember that there are many competing companies in this space, and many competing standards, so they certainly don’t own the “smart meter” concept despite their strong current position.
Back to the present day again … for updated disclosure, I continue to have no investment exposure to any of the stocks mentioned above. How do you feel about the bio-plastics revolution, or about smart metering as an investment theme? Let us know with a comment below!
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