By Gregory Dorsey
Emerging Investments
Nothing is more frustrating than watching a stock decline for no apparent reason, especially when the rest of the market is enjoying solid gains. That has been the case during the past few months with Emerging Leaders Portfolio member Energy Conversion Devices (ENER). The company is at the forefront of several exciting technologies - any one of which could prove to be immensely profitable - which is why the stock is a better deal today than it was a month ago.
Company co-founder Stanford Ovshinksy (along with his recently deceased wife Iris, a biochemist) has spent the better part of his lifetime developing unique technologies through his pioneering work in the field of amorphous and disordered materials. Dubbed the Edison of our age, the octogenerian holds a portfolio of 350 U.S. patents and 500 foreign counterparts.
The results of his work are practical applications in four major areas: energy generation, including photovoltaics and fuel cells; energy storage, including Ovonic nickel metal hydride batteries for consumer and electric devices, hybrid vehicles and solid hydrogen storage; information systems, including amorphous semiconductors, switching and phase-change memories, both optical and electrical; and atomically designed synthetic materials for a wide variety of uses.
Anyone who thinks today's high energy prices are a temporary aberration is deluding themselves. Seven of the world's 15 largest oil producers are past their production peaks; and no matter how hard they try, they'll never be able to surpass their previous output levels. And even if vast new pools of oil are discovered, output won't be able to keep up with the world's desire for the stuff.
Various alternative forms of energy are cost-effective today, most notably wind and solar, and will play a growing role in our lives going forward. Solar usage is expected to grow by 30 percent annually for years to come, yet its growth has been hampered in the last two years by a lack of available silicon.
ENER's thin-film photovoltaic (PV) panels offer several advantages over rival technologies in this space. They require significantly less silicon to manufacture and are economically produced in massive rolls. Moreover, since they're flexible, any surface can potentially be used to produce electricity.
The company is gaining widespread commercial acceptance for its version of solar power systems. For instance, it recently announced the installation of its UNI-Solar PV panels to power the 1.1 megawatt solar energy array system at California's Paramount Farms, the world's largest supplier of pistachios and almonds. The installation, on an eight-acre site, is one of the largest single-site, privately-owned solar energy systems in the U.S. and will generate enough electricity to power 300 average-sized homes.
Last spring, management announced reorganization plans with an eye for focusing its efforts on the company's profitable Uni-Solar division. It has scaled back plans for its hydrogen, fuel cell and other businesses, which could be part of the reason, the stock has been under pressure lately.
While management is putting its other business lines on the back burner, they continue to represent tremendous promise. For instance, ENER is working on energy saving memory modules that could be the most revolutionary - and most profitable - technology for the company. A subsidiary designs electrical phase-change memory technology that could ultimately go a long way in reducing energy consumption in electronic devices. Non-volatile phase-change memory is a revolutionary step beyond flash memory that's currently used to store information in USB drives and portable devices such as iPods and cell phones.
Energy Conversion is working on joint ventures with Intel and STMicroelectronics and it has licensing agreements for the technology with others, including Samsung. The technology has the potential to become the de facto industry standard in a few years. Royalties on its PRAM chips is still more than a year away, but given the chips' properties ENER could be generating several dollars a share in earnings from the technology in a few short years.
Likewise, its battery technology has great potential. During the past decade Toyota has taken its Prius gasoline-electric hybrid from being a novelty driven by a handful of people intent on making eco-friendly statement, to a mainstream car with more than one million vehicles on the road. Several auto manufactures now offer various models with hybrid engines and even more are slated to be introduced in the next few years. The evolution of these hybrids will include improved battery technology. And Energy Conversion Devices, working in a 50-50 joint venture with Chevron, is one company that stands to benefit.
The company is only marginally profitable right now, simply because management is spending so much on R&D. However, with its solar sales ramping up, we expect ENER to earn 50 to 75 cents a share next year, with long-term annual gains of at least 30 percent to follow.
Ovshinsky recently exercised options on 165,000 shares priced between $33.75 and $36 a share and immediately sold them. The sale, which represented 43 percent of his stock in the company, wasn't received favorably on Wall Street. Given the man's age, however, we're not inclined to second guess his motives.
Other believers in the company's potential include GM's former chairman Robert Stemple. He's the company Chairman and CEO, as well as major shareholder with more than 490,000 shares in his account. Count us among the stock's fans as well. Buy it here if you don't already own it and look for it to climb to the $50 area in the next two years."
Editor's Note: Gregory Dorsey is editor of Emerging Investments, P.O. Box 248, Williamsport, PA 17703, 1 year 12 issues, $129. www.emerginginvestments.net.
