“The Next Stock of the Decade” from Strategic Trends Investor

What's being teased by David Fessler as "The Largest Economic Opportunity of the 21st Century?"

The teaser ad I’m reviewing today is from David Fessler, a pitch for his Strategic Trends Investor ($79/yr) that has been running for a few days now. It’s all about a miraculous machine with some little ceramic tiles that will power our world and make us all rich… ready?

Here’s the part of the tease that gets your blood flowing:

“Every decade has a single stock that defines it.

“It’s that one company that creates a new technology, a new product or a whole new industry that’s so innovative and game-changing…

“That it rewards investors with a massive payday.”

And those stocks are easy to find in retrospect, of course, which is what they do in this pitch — noting Walmart from the 1980s, Cisco in the 1990s, Monster Beverage in the 2000s and Netflix in the 2010s, with returns for those ranging from 4,000% to 70,000%.

So ears are perked up when he says “I’ve just identified what I believe is ‘the Next Stock of the Decade.'”

So what business is this new stock in? More hype from the ad:

“It’s a company that has created the most game-changing new technology in the world today.

“60 Minutes has compared it to ‘the holy grail.’

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“Yale called the coming spread of this type of technology ‘the next big thing.'”

And he quotes an unnamed shadowy billionaire, who says that this is “The Largest Economic Opportunity of the 21st Century.” In Fessler’s words…

“Those are the words of a billionaire… a member of the Midas List of the very richest people in America… and the secret moneyman behind some of the biggest success stories in history.

“This secretive billionaire was quietly the lead investor in both Amazon and Google.”

Why such a big deal? Here’s a little hype:

“Because this company… which just recently IPO’d and trades for less than $10… is set to become the most important company in America.

“The company was founded by a brilliant NASA rocket scientist.

“He was working on a secret project to create livable environments on the surface of Mars.

“And in doing so, he managed to create a new technology that will forever change the planet Earth.”

Ooooo… secretive high tech investors, Mars scientists, recent IPO — that’s almost all the “get me to quiverin'” levers you can pull in a teaser ad (just add “secret location” and some kind of Indiana Jones story, and I’ll be all but helpless).

So what’s the actual technology? We get some hints about that, too…

“The base component of this technology is just 100 millimeters by 100 millimeters (mm).”

And it’s not just a technology, apparently there’s also some sort of product available…

“The rollout is happening as we speak….

“It has deals in place with Walmart, Google, eBay, Apple, Staples, FedEx, Safeway, Home Depot, Macy’s, AT&T, Honda, Yahoo, Verizon and more.”

So… we know it went public recently, trades near $10, and at that price has a market cap of around a billion dollars — which used to be a lot, but today can still mean you’re a pretty “undiscovered” small cap.

And the technology is some sort of silicon membrane…

“… a simple ceramic tile.

“It’s created using one of the most common and widely available materials on earth… beach sand.

“And on each side, the tile is coated with a special type of ink….

“When you channel electricity into the tile and through the special ink… it creates exactly two byproducts.

“One, breathable air.

“And two, usable natural gas.”

Which means, once you reverse the flow, that you can use air and natural gas to create electricity, without combustion.

So that takes away some of the mystery — that means what they’re teasing here is just a type of fuel cell, something you’ve likely heard of before. Here’s a good basic description of how they work, it basically extracts the energy in hydrocarbons through an electrochemical reaction instead of through combustion — which means that although you’re using fuel, usually something like natural gas, you’re not creating nearly the same level of emissions as you would by burning that fuel — no sulfur dioxide, nitrogen oxide or soot.

So this is, as many of you have already guessed, the long-hyped company Bloom Energy (BE), which was rumored as a possible IPO even before the 2008 financial crisis, but finally did come public about two years ago to some fanfare, rising from the $15 IPO price to over $30 before the late-2018 weak market took the wind out of their sails. The stock has been as low as $2 or so in the past year, and as high as $14 right before the coronavirus collapse. It’s still quite small, the market cap is about $1.4 billion at the recent $11.50 share price, and they do have a meaningful level of revenue, at $740 million over the past year, though revenue growth is low (6%) and their product and operating costs are still very high (gross margin is 12%, the profit margin is negative 50% — meaning it costs them about a billion dollars to generate $740 million in revenue).

Here’s how Bloom describes itself:

“Bloom Energy was founded in 2001 with a mission to make clean, reliable, and affordable energy for everyone in the world. To fulfill this mission, the company has developed a distributed, on-site electric power solution that is redefining the $2.4 trillion electric power market. Our solution is a stationary power generation platform built for the digital age. The Bloom Energy Server is capable of delivering highly reliable, uninterrupted, 24×7 constant (or base load) power that is also clean and sustainable. Commercial and industrial electricity customers are our initial focus and our customer base includes 25 of the Fortune 100 companies. Bloom Energy is headquartered in San Jose, California.”

And that “secret moneyman” quoted in the ad is John Doerr, who is the Chairman of legendary venture capital firm Kleiner Perkins… though the “Largest Economic Opportunity of the 21st Century” quote is actually from 2010, when he was interviewed by 60 Minutes as part of a story on Bloom Energy, and was about clean energy in general (though at the time, Bloom was the first clean energy investment Kleiner Perkins had made).

So since we’re quoting that 2010 story here, I should quote the skeptical stance from a decade ago, too, since it’s probably still at least somewhat relevant — this is from that same 60 Minutes transcript, when they interviewed longtime tech writer Michael Kanellos (he was with GreenTech Media at the time):

“I’m skeptical. I’m hopeful but I’m skeptical. ‘Cause people have tried fuel cells for since the 1830s,” Kanellos said. “And they’re great ideas, right? You know, producing energy at an instant. But they’re not easy. They’re like the divas of industrial equipment. The little plates inside have to work not just for an hour or a day, but they have to work for 30 years, nonstop. And then the box has to be cheap to make.”

“What if he can get the price way down? He claims he can,” Stahl remarked.

“And if he can, the problem is then G.E. and Siemens and other conglomerates probably can do the same thing. I mean they have fuel cell patents. They have research teams that have looked at this. And they have a much greater leeway to actually spread that cost over a lot of products,” Kanellos replied.

BE shares have popped recently, largely because of their announcement last week that they’re partnering with Samsung Heavy Industries to develop fuel cell-powered ships… which, frankly, sounds a long way off (they hope to “present designs” by 2022), but is a huge market and does make a good story, as companies try to come up with ways to meet the 2030 emissions targets for the International Maritime Organization.

The story has certainly changed a lot in ten years, even the product name has been adjusted a bit (from “Bloom Boxes” to “Energy Servers”), but it hasn’t changed as quickly as folks were envisioning back then. Bloom’s reality has not yet caught up with their dreams… John Doerr first backed the company around 2001 when it was just being launched, 19 years ago, and he reportedly envisioned them being public as soon as 2010, with the company planning to be able to produce home-sized “energy servers” by now that might be priced in the $3,000 neighborhood, only a bit more expensive than a whole-house generator.

The costs have stayed stubbornly high, countered somewhat by continuing “green energy” subsidies, and the “Bloom Box” components do have a limited shelf life, so the panels in their fuel cell “stacks” have to be replaced every 5-10 years or so. But still, fuel cells tempt us because they sound so cool, and offer so much potential promise.

I’m a little surprised that Bloom didn’t have a bigger surge in revenue over the past few years, with the California wildfires and huge disaster seasons really pushing companies and homeowners to find energy security from off-grid solutions… but when you look at the numbers, it actually turns out that their revenue growth, while recently disappointing, has at least been better than the generator folks have reported. This chart compares Bloom to Generac (GNRC), the most prominent generator company — that’s Bloom revenue growth in green compared to Generac in orange, so they’ve outgrown them during their short life as a public company so far, yet GNRC shares (blue) have soared far higher than BE since the IPO (red).

GNRC Chart

The difference, of course, aside from the fact that Generac’s generators burn natural gas or propane while Bloom’s cleaner “Servers” are fuel cells, is that Generac is profitable — so while they’re growing not as quickly even with the boost from wildfires in California, they’re making money and have doubled their net income in three years, while Bloom’s losses have stayed pretty stubbornly high despite their revenue growth.

So Bloom on one hand is a hot tech story, even if it’s getting a little long in the tooth now, and on the other is a capital-intensive seller of fuel cell generators on which they consistently lose money, with a persistent debt burden and no obvious evidence of economies of scale (their cost of goods sold has at least been less than 100% since going public, but the gross margin has not really improved since the end of 2017, and operating expenses as a percent of revenue have also stayed stubbornly high). They need a lot more revenue growth to have a hope of growing into a sustainable business, but unless they also find a way to significantly reduce costs without cutting prices, they might not be able to afford to grow much faster without raising a bunch more money.

Which shouldn’t be hard, particularly these days — there’s money growing on trees, they were able to refinance their convertible debt last quarter on pretty good terms, and their cash burn rate is not terribly dramatic because it looks like they use stock-based compensation to cover much of their employee costs — but you do have to have some imagination to see the company getting a lot better, quickly.

The company’s first quarter shareholder letter lays out the current situation pretty well… and really, it’s still all about the future — still working on their mission to create distributed cleaner energy generation around the world, and recently ramping up their costs to push forward with development of their next generation “Servers”.

There are a few analysts covering the stock, and they expect pretty meaningful revenue growth next year, almost 25% in both 2021 and 2022 (after 2-3% growth in 2020), with improving margins. If that’s how it plays out, then the stock could do just fine from here — but analysts also overestimated BE’s revenues in 2019 by almost 20%, and estimates of that growth have been pretty steadily pushed off into the future since the IPO, so we should take that optimism with a little skepticism.

I want to like Bloom, I think their concept of more distributed energy generation (office buildings having their own fuel cells, etc.) makes sense, both because the electricity grid is getting shakier all the time and for security and efficiency purposes, even if it does rely on the natural gas infrastructure and on regular replacements of fuel cell components… but it’s hard for me to have any confidence that they’re at an inflection point after 20 years of development. It’s a tough business, with meaningful competition and lots of external factors influencing their prospects, and they’ve set themselves up to try to build the company and build market share by selling at a loss for so long now that it’s hard to see when that will change.

Maybe I’m being too skeptical, or too spoiled by the many software companies I’ve been looking at lately which are so much more scalable than these “heavy stuff” businesses like Bloom… and maybe you’ve got reasons to bet on Bloom now — if you’ve looked into this one and have a sense of where the business is going, or are excited about their new technologies or their prospective plans with Samsung, or whatever else, let us know with a comment below… maybe you’ll be able to talk me into getting involved, but for now I’ll watch Bloom Energy from the sidelines.

P.S. Readers wanna know — have you subscribed to Strategic Trends Investor? If so, please click here to pop over to our Reviews section and let your fellow investors know what your experience has been like. Thanks!

Disclosure: Of the companies mentioned above, I own shares of Alphabet and Amazon. I will not trade in any covered stock for at least three days after publication, per Stock Gumshoe’s trading rules.


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eb0079
Irregular
👍34

This is not really a “new” recommendation
Since shares took more than 38% already

JayBee1
Guest
JayBee1

125 million shares outstanding, and a little over half held by institutions, but short interest is almost 14 %. I remember reading once that Whitney Tilson thinks that short interest above a certain percentage (I think that he said over 5 %) is a red flag.

fear index
Irregular
👍1
fear index

Some traders see a lot of short positions can make for an explosive upside move when those shorts start to cover to avoid a margin call.

Old Guy
Irregular
👍36

I may have missed it, but when you spoke about Generac (GNRC), it should be mentioned that they’re aggressively moving into backup storage with something similar to TESLA’s power wall in addition to providing on demand back-up power. I’ve been along for the ride with GNRC and have been very happy with the results.

Carbon Bigfoot
Guest
Carbon Bigfoot

Professor Emeritus of Physics, Howard Hayden, University of Connecticut and publishes “The Energy Advocate”. He will speak at the 38th Annual Doctors for Disaster Preparedness Aug.14-16 in Las Vegas. His topic is” The Energy Storage Delusion.” A tidbit from his website for Fairy Dust Dreamers that don’t understand thermodynamics or energy density:
http://www.energyadvocate.com/batts.htm

tomtom73
Member
👍36
tomtom73

I live in Wisconsin so I have held Generac for years. It is a long term, dividend stock for me as that is the sort of stocks I buy, dividend aristocrats. I don’t look for moon shots, just steady stocks. I don’t back the “green” pipe dream as that is bogus and a big government wealth transfer deal as it looks to me.

weetbix
Member
👍0
weetbix

it says theres been insider trading and high level of debt, what do you think ? still a buy. is the debt funding a takeover or covering wages over covid

chris pflaum
Guest
chris pflaum

The Bloom Box is essentially a generator, like the Generac. Unlike the Generac, it is designed to operate continuously. The Bloom Box’s primary competitor is solar cell arrays, at least in the residential and small commercial markets. When solar roofing tiles become available, Bloom is toast as solar uses no fuel and has minimal operating and maintenance expenses.

Carbon Bigfoot
Guest
Carbon Bigfoot

” When solar roofing tiles become available Bloom is toast”……and solar tiles don’t work when THE SUN GOES DOWN—and Energy Storage is a delusion. In fact Bloom’s fuel cell is designed to work as a MICRO-GRID incorporating solar arrays and other fairy dust alternatives in order to avoid disruptive interruptions, i.e., nighttime inactivity for solar and NO WIND for turbines. It is essentially designed for commercial operations and has an impressive list of SP 500 installations. The stock is traded, bought 1000 shares @$18 sold @$30. I’m in an out options until there are sustain earnings and Bloom stays out… Read More »

Carbon Bigfoot
Guest
Carbon Bigfoot

Yesterday 07/15/20 my BE position is up 35% on news of a South Korean joint venture utilizing hydrogen (H2) as a fuel source. Not sure this is sound engineering or chemistry since manufacturing hydrogen by current methods is not cost effective (net negative energy loss). As I mentioned above this stock has been traded making it a risky play. I hope the “Shorts” had their collective ass handed to them and maybe we can invest in this stock based on normal sound investment principles. Interesting turn of events. Travis maybe you can do your great detailed scoop on this in… Read More »

Rog
Guest
Rog

2 UK fuel cell companies are top notch. ITM Power (LSE: ITM) shares have had a great run recently. Over the last three months, ITM Power’s share price has risen more than 150%. Over the last year, it’s surged around 800%. After that kind of stunning performance, ITM Power shares are now getting plenty of attention. But is the AIM-listed stock worth buying today? Let’s take a look at the investment case. What does ITM Power do? ITM Power is a clean-fuel company that specialises in hydrogen energy solutions. Those solutions are designed to take excess energy from the power… Read More »

ronwill
Irregular
👍360
ronwill

or ITMPF and CPWHF for OTC listings

frostly
Irregular
👍47
frostly

Thanks I was searching for that.

ronwill
Irregular
👍360
ronwill

One day someone will develop a power source that scrubs carbon from the atmosphere to the joy of the climate change crowd. Resulting in all of earths vegetation dying off…..

jj1156
Irregular
👍6
jj1156

What historians will definitely wonder about in future centuries is how deeply flawed logic, obscured by shrewd and unrelenting propaganda, actually enabled a coalition of powerful special interests to convince nearly everyone in the world that CO2 from human industry was a dangerous, planet-destroying toxin. It will be remembered as the greatest mass delusion in the history of the world – that CO2, the life of plants, was considered for a time to be a deadly poison.
Richard Lindzen

Carbon Bigfoot
Guest
Carbon Bigfoot

Met Richard Lindzen and discussed the failed CAGW in DC at the Third International Climate Change Conference ( ICCC-3 ) in June 2009. One of the all-stars of we skeptics. Join us at https://wattsupwiththat.com or at https://principia-scientific.org where real scientists meet. As a follow up to a previous post about Bloom Energy the Kraft Group is installing Bloom equipment at Gillette Stadium read about it https://www.businesswire.com/news/home/20200727005105/en/..

otradovec1
Irregular
👍0

they have some thing called silicon

samwiebaux
Guest
samwiebaux

I ALREADY INVENTED THAT!

IT STARTS OFF WITH THIS AWFUL WAILING SOUND THAT BECOMES HIGHER PITCHED THE FASTER THE TURBINE TURNS THE VAINES OF THE MACHINE!

WE HAD A CRUDE ONE BACK IN 58, 59, BUT IT NEVER WORKED QUITE RIGHT AS THE SOUND OF THE WAILING WAS NEVER DROWNED OUT BY THE DEMONIC THUMP SOUND, FOLLOWED BY THE SUDDEN LACK OF OXYGEN AS THE MUSHROOM CLOUD RAKED THE SKIES WITH RADIOACTIVE, INSOMNIA INDUCING, LEFTIST WARNINGS OF ATOMIC ATTACKS!

frostly
Irregular
👍47
frostly

Thanks for this . It looks like shares of fuel cell and alternative fuel companies are on the rise. Poor oil and gas cant seem to catch a break. I confess I already bought some PLUG FCEL SOLO out of FOMO.