Looking for Silver Linings in Small Cap Energy Storage/Electric Power Market

All of us at Smallcapworld are optimists at heart, so when it’s time to write about battery companies, we look for the good story lines. It’s a “glass half full” philosophy.

PbC batteries courtesy Axion Power International

For that reason we are temporarily ignoring lithium ion battery maker A123 Systems (Nasdaq: AONE), which on May 11 posted a first quarter net loss of $125 million, more than twice the loss it reported in  the fourth quarter of 2011 and the first quarter a year ago. Quality problems and a slack demand for electrical cars are mostly the blame, according to press statements.

Perhaps we can put another lithium ion technology company, Valence Technology (Nasdaq: VLNC), in the same category, being that it is trading at the very bottom of its 52-week range (67 cents as of May 14 with upper end of range $1.34) for many of the same reasons as A123. As optimists, however, we might argue that these low valuations (A123 closed May 14 at 91 cents and was as high as $6.20 last June) may be good bargains. We shall see. If you want to know more about VLNC, listen to the company results conference call May 23 at www.valence.com).

So where are some silver linings in the small cap energy storage/battery market? Here are a few randomly chosen companies where you might find some hope:

San Diego-based Maxwell Technologies (Nasdaq: MXWL, http://www.maxwell.com) makes ultracapacitors and high voltage capacitors that provide energy storage and power delivery solutions for applications in many industries including transportation, automotive, information technology, renewable energy and industrial electronics. It also makes microelectronic products for satellites and spacecraft. While management reduced sales growth guidance durings its earnings call May 9, four insiders bought 48,000 shares at prices between $9 and $10.20, suggesting perhaps that they thought it was a good buy, according to Renewableenergyworld.com.  (http://www.renewableenergyworld.com/rea/news/article/2012/05/maxwell-technologies-mxwl-buy-or-steal). Market cap is about $233 million, 52-week range is $8.62-$21.49. MXWL closed May 15 at $8.26, up 21 cents for the day.

Reading, PA-based EnerSys (NYSE: ENS, http://www.enersysinc.com) is a little big for our blog (market cap is $1.52 billion) but we’re looking everywhere for some good news. We found it at Motley Fool (http://www.fool.com/investing/general/2012/04/10/1-reason-to-expect-big-things-from-enersys.aspx) which apparently believes that ENS inventory levels indicate the company may see increased demand on the horizon. ENS makes industrial batteries, battery accessories, chargers and power equipment. Its 52-week trading range is $17.35-$36.51. Daily trading volume is about 390,000 shares a day. It closed May 15 at $31.44, down 32 cents on the day.

Newark, NY-based Ultralife Corp. (Nasadaq: ULBI, http://www.ultralifecorp.com) operates in three segments: Battery and Energy Products, Communications Systems, and Energy Services. It makes a lithium 9-volt battery as well as various other rechargeable and non-rechargeable batteries. Management confirmed its previous guidance of year-over-year revenue growth “approaching double digits,” according to Reuters. ULBI has a market cap of about $74 million and its 52-week trading range is $3.88-$5.50. It closed trading May 15 at $4.16, down 30 cents for the day.

New Castle, PA-based Axion Power International * (OTCBB: AXPW.OB, http://www.axionpower.com/) manufactures high-performance, low-cost lead-carbon (PbC(R)) batteries for a variety of markets, including for “mild” and “micro” hybrid vehicles, which are anticipated to be the commonest form of hybrid in the US within a couple of years (and already the most common in Europe). Its PbC batteries are as easy to manufacture as the older lead-acid batteries, but they use activated carbon instead of half the lead.  They are lighter and 100% recyclable (unlike lithium ion batteries), and have a higher charge acceptance and faster recharging rates, making them ideal for the growing  micro-hybrid and mild hybrid markets.  AXPW announced in April that Norfolk Southern had placed an initial order for the company’s PbC batteries for a battery-powered locomotive. AXPW has a market cap of $46 million and a 52-week trading range of $0.25-$0.84. It closed May 15 at $0.38, down 4 cents for the day.

Danbury, CT-based FuelCell Energy Inc. (Nasdaq: FCEL, http://www.fuelcellenergy.com) makes high temperature fuel cells for clean electric power generation. FCEL sells its products to electric utilities, independent power producers, universities, waste treatment facilities and other customers. The company has posted three consecutive quarters with “positive gross margins, revenue that beat expectation and a strong backlog, according to Seeking Alpha (http://seekingalpha.com/article/546321-fuelcell-energy-strong-quarter-and-a-shot-at-fuel-cell-profitability?source=yahoo). FCEL has a market cap of $151 million and a 52-week trading range of $0.80-$1.97. It closed May 15 at $1.09, up 5 cents for the day.

* Denotes client of Allen & Caron Inc., publisher of this blog


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