Published:
July 3, 2007
The solar power company Energy
Conversion Devices (Nasdaq: ENER,
$31.04)
is a an emerging technology company
whose time has finally come. Over
the past 40 years, it has garnered
more than 350 domestic and more than
600 foreign patents covering a wide
range of potential solutions to our
dependence on fossil fuels and more.
All it lacked were profits. Indeed,
it has been profitable in just two
of the past fifteen years. This
"always tomorrow" company
has stayed afloat by its ability to
attract capital from a public
willing to bet on novel energy
solutions as well as from partners
including Chevron and Toshiba.
We think that tomorrow is now at
hand, and we're betting that Energy
Conversion Devices will turn
profitable within the next six to
twelve months and will then grow at
a super-fast clip -- by more than 50
percent a year -- thereafter.
Specifically, in fiscal 2008, ending
June 2008, it should ink more than
$1.00 a share; in 2009, $2.00 a
share; and by the decade's end
profits could approach $3.00 a share
with the company on track for
continued outsized growth well into
the next decade.
The company has a stake in a wide
range of energy solutions, including
hydride batteries that can
potentially power hybrid cars,
ultra-fast energy-saving chips, and
techniques for storing hydrogen. The
division most likely to lead growth
over the next three to five years,
though, is the company's novel solar
collection materials. Energy
Conversion Devices has been a
pioneer in the technology and
manufacturing of thin film solar
energy collectors. While thin film
collectors are less efficient than
silicon, they are far cheaper to
produce. As a result, right now the
per-watt cost of producing
electricity using these films is
about the same as for silicon. But
with thin film there is a rapid
learning curve, i.e., manufacturing
efficiencies are likely to bring
costs down dramatically, making this
the cheapest path to solar
electricity. Because thin film is
more pliable than silicon but larger
in area, it's ideally suited to
commercial and industrial
applications.
Given the advantages of thin film
and the fact the solar market is
still in its infancy, Energy
Conversion Devices can likely sell
as much film as it can make. Current
capacity is about 28 megavolts (MV)
a year; the company aims for 300 MV
by the end of the decade. Its
ability to successfully expand its
manufacturing capacity will
determine the company's overall
growth trajectory. We're betting on
its success. One reason is that for
the first time in its history the
company is being managed by
individuals with solid manufacturing
and business credentials, as opposed
to brilliant scientists. The
chairman is Robert Stempel, a former
General Motors chairman. Also on the
management team are Texaco's former
technology chief and Occidental
Petroleum's former treasurer. The
company's ability to attract such a
stellar team is both a major plus
and a testament to its prospects.
The company is involved in a lot
more than just solar energy. It is a
50-50 partner with Chevron in a
venture that manufactures nickel
metal hydride batteries -- the only
maker of such batteries in North
America, meaning they'll be the
batteries of choice in hybrid
vehicles manufactured in the U.S.
Moreover, because of patent
protection, the venture gets
licensing fees from most batteries
made outside the U.S. The potential
is enormous. Capital will be
required to gear up manufacturing if
hybrid vehicles really take off
(which we think is inevitable). But
with Chevron as a partner, that
shouldn't be a problem. By early
next decade this venture will likely
contribute substantially to the
bottom line.
Energy Conversion Devices has a 39.5
percent interest in another joint
venture, this one to manufacture
super-fast memory chips. The
co-investors are Intel and the
former chief tech officer of Micron
Technology. Manufacturing of the
chips has just started, and the
products are being tested. The
venture claims that the chips are up
to a thousand times faster than
current flash memory chips.
Applications could range from cell
phones to PDAs to any number of
other consumer devices. Here, too,
the potential is vast. The flash
memory market is currently $20
billion, and the total memory market
tops $200 billion. Commercial
production could begin as early as
2008.
Finally the company is trying to
develop hydrogen storage materials
that can be used in conjunction with
fuel cells. Fuel cells can be used
in just about any device that
requires a battery. Unlike a
battery, a fuel cell has a constant
source of power -- hydrogen. The
company's technology, which is a
much longer-term bet than its other
products, is aimed at allowing fuel
cells to be manufactured without
platinum as a catalyst. If the
product pans out, Energy Conversion
Devices would have access to another
multibillion-dollar long-term
market.
An investment in this company is a
bet that one of the leading research
organizations of the past two
generations will be able to
transition from its research roots
to being a profitable manufacturer.
Given its exceptional management, we
think the odds are heavily in its
favor. But we're not overlooking the
fact that this is a high-risk
company that so far has never
managed to sustain profitability.
But actually, if you looked only at
the company's balance sheet, you
could make a case for a good
risk/reward rating: debt is nominal,
while cash amounts to nearly $10 a
share. Be assured, though, that the
company will continue to function
even if its profit plans are
delayed. And given the enormity of
the potential markets, and the
leading-edge aspect of many of the
company's proprietary technologies,
the potential gains far outweigh the
risks. Buy this high risk/high
reward stock for a security that
could double over the next 24
months.
Dr. Stephen Leeb
Editor
The Complete Investor
About Dr. Stephen Leeb
Dr. Leeb is an authority on the stock market, energy trends, and personal
finance. Dr. Leeb combines his knowledge of macroeconomic trends and current
market conditions with detailed information about specific companies he follows.
Dr. Leeb is the author of six books on investments and financial trends. His
newest book The Coming Economic Collapse: How You Can Thrive When Oil Costs
$200 a Barrel (Warner Books, 2006), co-written with Glen Strathy, was
released in February 2006. It outlines the biggest challenges facing the
American economy and the steps individuals and government can take to forestall
them.
His best-selling book The Oil Factor: Protect Yourself - and Profit - from
the Coming Energy Crisis (Warner Books, 2004) accurately predicted the surge
in oil prices and was rated among the top investment books of the year by Stock
Trader’s Almanac 2005. It also forecasts a longer-term energy squeeze,
further price increases, and lays out a detailed investment plan for coping with
this new world. His previous book, Defying the Market: Profiting in the
Turbulent Post-Technology Market Boom (McGraw-Hill; 1999) predicted the
collapse of technology stocks and the growing importance of oil, real estate,
and other hard assets in a portfolio strategy. The book was selected by the Library
Journal as one of the "Best Business Books of 1999." Dr. Leeb co-authored
both books with his wife, Donna Leeb.
Timer Digest has rated Dr. Leeb among the top market timers for both
stocks and bonds several times over the past decade, and Dr. Leeb's The
Complete Investor newsletter has earned an award for editorial excellence in
2004 and 2005 by the Newsletter & Electronic Publishers Association. Prior
to founding The Complete Investor, Dr. Leeb was the longtime editor of
the widely acclaimed Personal Finance financial newsletter, in which his
investment advice at one point reached over 120,000 subscribers twice per month.
Dr. Leeb received his bachelor's degree in economics from the University of
Pennsylvania’s Wharton School of Business. He then earned his master's degree
in mathematics and Ph.D. in psychology from the University of Illinois in just
three years, an academic record that still stands. He is frequently quoted in
the financial media, including Investor's Business Daily, USA Today,
Business Week, The New York Times, and The Wall Street Journal.
In addition, Dr. Leeb is a recurring guest on Fox News and Bloomberg, and he has
appeared on Wall $treet Week with Louis Rukeyser, Business Insiders,
and CNBC.
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