Tesla a Bright Spot in Still Dim, but Improving Electric Car Industry

Photo of Nissan Leaf S courtesy of evworld.com

Photo of Nissan Leaf S courtesy of evworld.com

Anyone watching the still slow but improving progress of the electric car industry may have seen the Bloomberg Businessweek story on the “Tale of Two Electric Car Makers: Tesla Soars, Fisker Flops” (http://www.businessweek.com/articles/2013-05-08/a-tale-of-two-electric-car-makers-tesla-soars-fisker-flops). Tesla Motors not only produced a profit in the first quarter, as advertized, but also increased its guidance on sales for the year, from 20,000 to 21,000 cars. TSLA revenues were up 83 percent year-over-year to $562 million and the stock is soaring (see below).

While the article outlines supply chain and battery issues and other “kinks in its processes” Tesla needs to iron out, their stock is soaring and the outlook looks good. The contrast was provided by Anaheim, CA-based Fisker Automotive, which is laying off employees and hiring bankruptcy consultants, the article reports. Another electric car maker, Los Angeles-based CODA Automotive, recently filed for bankruptcy protection and announced it was “focusing its business strategy on the growing energy storage market,” according to a company filing.

For more positive electric car news, the BBC posted an article this week on the Nissan Leaf (http://www.bbc.com/autos/story/20130509-leaf-charges-into-mid-life) as it “charges through mid-life.” The Leaf, billed as “the first truly global mass-produced electric vehicle,” now includes the Leaf S, a lower cost model “designed to lower the barrier of entry to EV ownership.” One of the cost cutting moves was to move its assembly line from Japan to another Nissan factory in Smyrna, TE.

The BBC put the Leaf through its paces and managed to get 75 miles from a full charge, right about in line with Nissan estimates. Competitors mentioned in the article include the Toyota Prius PH-V and Ford C-Max Energi, both plug-in hybrids.

If anyone out there is charged up about the electric vehicle market, and knows of a small cap stock play in this market, please let us know. Meanwhile, we’ve been following a few small caps, plus Tesla to see how their stock is moving. We’ve also added a new company, Car Charging Group, to our list.

Palo Alto, CA-based Tesla Motors (Nasdaq: TSLA, http://www.teslamotors.com/) manufactures the Tesla Roadster, the Model S and other electric vehicles and electric powertrain  components. It’s way too large for our small cap blog focus, but just as a reference, the last time we looked at Tesla last February 20 it was trading at $38.90 with a market cap of $4.4 billion. As we mentioned, TSLA stock has been on a huge roll. It closed May 15 at $84.84, up $1.60 for the day. Its 52-week trading range is now $25.52-$97.12.

Santa Rosa, CA-based ZAP (OTC: ZAAP.OB, http://www.zapworld.com/) makes a variety of all-electric vehicles including trucks, motorcycles, shuttle buses and sedans and was formerly known as ZAPWORLD.COM. When we last checked on Feb. 20 its stock closed at $0.08 with a market cap of $24. ZAAP closed May 15 at $0.14, up 3 cents for the day, with a market cap of $42 million. Its 52-week trading range is $0.06-$0.27.

San Diego-based Maxwell Technologies Inc. (Nasdaq: MXWL, http://www.maxwell.com/) was formerly known as Maxwell Laboratories. The company manufactures ultracapacitors that are energy storage devices and power delivery systems for use in transportation, automotive, IT and industrial electronics.  MXWL closed back on Feb. 20 at $10.01 with a market cap of $292 million. It closed May 15 at $6.36, up 11 cents for the day, with a market cap of $185 million. Its 52-week trading range is now $4.90-$11.08.

Miami Beach-based Car Charging Group (OTCQB: CCGI, http://www.carcharging.com/) caught our eye with the announcement March 12 that it was acquiring EVPass, a company building destination charging networks for EV charging. CCGI  is also in the business of building charging station networks and has been busy making more acquisitions. Earlier this month, CCGI announced it had acquired 350Green LLC. CCGI closed May 15 at $1.34, up 4 cents for the day, with a market cap of $70.8 million. Its 52-week trading range is $0.60-$2.

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Mary Lisanti: Continued Corporate Earnings Growth in 2013 (When the Federal Government Resolves the Budget)

Mary Lisanti is president and portfolio manager of AH Lisanti, an investment management company currently focused on small cap growth companies. She is a 33-year veteran of small cap growth research and investing. For the first 12 years she was a small cap analyst and strategist on Wall Street. During the past 18 years, she has managed small cap portfolios at premier asset management companies. As CIO of ING Investments LLC, (1998-2003) she was responsible for building the active equity management team, and assets under management in her area grew from several hundred million to several billion dollars. Prior to ING, Mary was at Strong Capital Management as Senior Portfolio Manager for both the Small Cap Growth and Mid Cap Growth Strategies and was Managing Director and Head of the Small/Mid Cap team at Bankers Trust Company. Mary was named Fund Manager of the Year in 1996 by Barron’s. She was named #1 small cap analyst in 1989 by Institutional Investor’s All-Star Research Team. In addition, she was ranked #2 and #3 in 1987 and 1986 respectively.

Mary-headshot

I had the pleasure of talking to Mary just before the New Year’s holiday at her office near Rockefeller Center.  We had first met in the late 1980s when she was interested in a technology company that proposed the radical idea of a keyless car ignition or computer security system using a fingerprint.  Interesting how what seemed futuristic now seems almost as old hat as, well, men on the moon.

JA:  How are you feeling about the year ahead?

ML:  Undecided.  I’ll give you some positives and some negatives.  One big positive is that corporate profit growth will still be decent.  Corporations are at very high profit margins, but when you break down what’s going on, there’s no reason they shouldn’t go higher.  Virtualization – the use of cloud computing, and other aspects of today’s high tech should help them cut costs.  For that trend to stop, two things would have to happen: a long period of negative revenue growth, accompanied by fast-rising wages.  Neither of those things is happening.

That will be a positive for the market.  Corporate profits are growing 8-10% and we believe that can continue, and that is widely dispersed across the board.  Small caps can grow even more,we believe, although again there will be wide dispersion in individual results.  This will be a classic stockpicker’s market.

The biggest negative for the market is that we cannot seem to govern ourselves.  That weighs on multiples.  That’s why, four years into this recovery, multiples are still low, particularly when you take into account where interest rates are and how  GDP growth, although below trend, continues to chug along at 2% or so.  In that scenario, logic would have it that multiples would be in the range of 18-19, but they are not.  Why not? I believe it is because of our inability to govern. Politicans are behind the curve;as they usually are, in addressing our structural issues to bring the long term deficit issues under control. Will they address the longterm issues or not?  If they do so now, it will require only modest changes to entitlements and spending. The extent to which we address those issues will affect the performance of the market going forward.

It is psychologically important to multiples: if you can slow the growth in spending at least a bit, you give people more confidence.  In the Clinton years they managed to slow the rate of growth in spending, and Clinton left office with a surplus.  I believe we will spend most of 2013 arguing about entitlements and other budget issues.  Next year it will be the Democrats saying no to entitlement reform, just like this year it was Republicans saying no to taxes.  I don’t know how much it is possible to get done, because it is being done in a fishbowl and from ideological positions that don’t accommodate compromise.

If they do not get something done, I fear that US debt will get downgraded again.

JA:  And would any of the DC politicians feel responsible if that happened?

ML:  I do not believe so, no.  Politicians, in my opinion, are in the business of passing the blame.  If there were another downgrade, it would affect President Obama’s legacy, and I don’t think he wants to be the president who oversaw two debt downgrades in his time in office.  Both sides will have an incentive to compromise and hopefully they will.  The biggest risk to all of us, and to the market, is that the dollar loses a bit of its luster as the currency of last resort.

When you look at Japan and China and Europe, they are getting their act together with regard to being attractive places to invest and could even potentially be attractive as reserve currencies in a few years.  My biggest concern is that we permanently change corporate behavior: if you have a climate of uncertainty for long enough you make people afraid.  Business overall has been clear with Washington that the uncertainty is damaging.  R&D tax credits, farm and agriculture bills, accelerated depreciation – Congress has been handling these as though they were annual issues, and they’re not.  They affect multi-year planning.  When the R&D tax credit was put in place in the early 1980’s, it was in place for 4.5 years.   That would be better—it would give businesses the ability to plan longer term..

These and other things are casualties of this ideological warfare in Washington.

JA:  What do you see as strengths in 2013?

ML:  It is an enormous positive that housing is recovering, and the recovery should continue, assuming Washington does not cut the mortgage deduction..  Unemployment is declining, although it is declining too slowly.  And we have cheap sources of energy.  . A number of industry sources believe that we will be energy independent in the next decade or so, which is a huge positive for our manufacturing competitiveness.

When you look at these things, once we make it through this budget and debt-ceiling problem, things look a lot better.

Governments all over the world have been spending money to fix the problems that caused the recession, and odds are that things will not fall apart again soon.  Over the past several years, we have had a major issue every year that has “terrified” us: last year it was the potential breakup of the Euro and Greek debt default, and this year it was the budget crisis in the U.S. Beyond the budget crisis, I do not see an issue that has the potential to scare investors as much as these two issues have. We should enter a period of more “normalcy,” where macro issues take a backseat to fundamental issues, and that change should allow multiples to increase. But belief in a more stable future will come slowly.

JA:  What should we look for in 2013 when we look at investments?

ML:  As small cap growth investors, we look for earnings growth.  But one of the great positives in this market is that there are many ways to make money in the market.  When I came into the business in the late 1970s, you could make get 7-8% returns several ways.  You could make money with yields –- those companies with no earnings growth offered very high dividend yields, say about 7%; those companies with earnings growth offered more modest dividends, say 2-4% dividends and 4-5% annual growth in earnings.  Growth stocks offered  very little in the way of dividends, but you could get capital appreciation as earnings would increase 10% to 15%.annually. Then, as we moved through the great bull market of the 1980’s and 1990’s, we got to the point where dividends were out of favor and capital appreciation was the only way to make money.. Now dividends are back and once again there are multiple ways to make decent returns in the stock market, depending upon one’s tolerance for risk..That is very, very positive for the equity markets.

JA: How about sectors?  Any of special interest, or any you would avoid?

ML:  There are good companies in every sector.  I would not recommend the utilities, but there are very good opportunities in materials, energy, consumer products and services, industrials and financial services,  In most of these the small caps usually have something unique about the way they do it, or the technology they apply to it.

Tech spending is not forecast to be up much in 2013.  There will be winners and losers.  We need to keep in mind that the corporate world is moving toward Software as a Service, which allows them to stop buying perpetual licenses, and to pay as they use software.  They are going from buying licenses and maintenance contracts, and now are basically paying just for what they use.  Same with cloud computing.  So they are going from spending $20,000 on software and a server to paying $1,000 month.  So even though tech spending is forecast to be close to flat, the companies that will be winners will have SaaS and cloud computing.  These trends will hold down spending.  It’s hard to see how the semiconductor companies are going to prosper in that environment, unless it is the specialty chipmakers who are specialized in populating ever-smaller chips with ever-larger amounts of circuitry for tablets and smart phones – or those companies that are specialized in the ability to manage the signals for those tablets and phones.  But other than those two, I don’t see a lot of growth there.  And I would be careful about traditional license-oriented software companies.  .

JA: What about healthcare companies?

ML:  Interesting.  It’s hard to guess how ObamaCare will play out.  There are some longterm secular trends in healthcare that are worth keeping in mind.  Keep your eye on the value proposition: better, faster, cheaper, more automated.  One of the most interesting areas is the second generation biotechs.  Think about AIDS, for instance.  Over the last 25 years it has become a livable disease – that is, we haven’t cured it, but we can make it possible to live with it, and to do well, not just to survive for a few more months.  Now the industry is working to make cancer livable in the same way; there are whole new classes of drugs that enable people to live with cancer, and not to just be blown away by it in a short time.  Possibly we are spending the same amount of money making cancer livable as we used to, but now we’re spending it over a longer period, and not all at the end of life.  Diabetes monitoring, for instance – the closer we get to continuous glucose monitoring, the better for diagnosis and treatment; One of our investments is Dexcom (DXCM), which has a promising technology for that.  All those big diseases are interesting, and medicine is getting its arms around them too.

JA: How about healthcare IT?

ML:  It has historically been mostly about billing and insurance, but now the future is to move on to quality of care.  Since we have had health insurance as a society, the focus has been on what you might call “industrial metrics,” such as how many patients you can process.  Now the quality of the outcome is more important, and best practices are more important.  There will have to be penalties for readmissions of the same patient.  Mobile apps for monitoring things like blood pressure, glucose, heart problems and blood gases – these things are going to become standard practice over the next 5 to 10 years.

JA:  You mentioned the impact of technology on industry.

ML:  There are lots of new beginnings now, along with outmoding of old things.  Software as a service and the use of the cloud – this is the biggest piece of cost to cut.  If you can cut your IT costs you have overall better margins, and better processes too.  And industrial automation is interesting too.  The first generation of automation concentrated on, for instance, lasers to cut steel.  Now automobiles are being made with lighter materials, so new lasers are needed, lasers to cut nonsteel materials.  Aerospace is an interesting area for this.  Two things that are driving aerospace are new materials that lower weight and cost, and a continuing cutback on oil-based materials.  There is a bit of a renaissance going on in aerospace.

One of our investments is IPG Photonics (IPGP) for the new lasers needed to deal with new lighterweight materials.  Another is Polypore International (PPO), which is making the membranes needed for new electric vehicles like the Chevy Volt and the Nissan Leaf. By the end of 2013, they are expected to be supplying membranes for 24 models of cars.  That goes back to the fact that fuel efficiency standards by 2025 will be at 54.5 mpg.

Another of our investments is Aspen Technology (AZPN), which basically supplies SaaS for factories and plants.  If you are a refinery, for instance, you are required by law to take your systems down every so often for maintenance and test for a number of things such as safety and pollution.  Doing that manually is difficult; it can be done, but it is hard, and if you are global it is harder.  Aspen automates all of that, and they are in a field by themselves basically.

JA:  And energy?

ML:  The shale revolution will be a big job creator, and the move toward natural gas for vehicles is important.  Fleets will be moving to Compressed Natural Gas (CNG), and we believe the infrastructure will be built out for CNG refueling.  Federal Express, UPS and the other big fleets will be the drivers.  We are interested in Westport Innovations (WPRT) for the CNG engines.  And we are watching Clean Energy Fuels Corp (CLNE) for the CNG supply chain, but big oil will be the installer.  We also believe solar will become economical to use, with panels on the roofs, for instance, of warehouses, and power being sold back to the grid when it is not needed.  Between the increased supply of natural gas, shale energy, coal, oil and renewable, we can get to be energy independent.

JA:  How about housing?

ML:  Housing is fascinating.  What happened with housing is what happened with autos.  Now after a period of low sales, we probably need as a nation to do some catching up.  We could need 1.7 million new housing starts for a couple of years.  That would double the current rate.  The Echo-boomers (who used to be called Generation Y) are starting to buy houses; their demand for houses is growing at 5% per year, and will grow at 10% per year soon.  My personal opinion is that this housing cycle will be a long one, similar to what we saw after the housing collapse in the mid 1970’s. In the first few years, we will see a catchup in pricing, but after that we believe housing prices will probably go up a couple of percentage points per year. If they implement the rules on mortgages that are being talked about, the housing market will become a lot steadier and more stable, more like the Texas market, where they tightened the downpayment requirement and favor 30-year-fixed mortgages.  That will be positive for the housing market and for consumer confidence.

There is nothing better for consumers than to have their biggest asset become more valuable every year.  Three years ago if you hadn’t already lost your job, you were still afraid you might lose it.  Your 401(k) and your house were devaluing.  This recovery is more like the late 1970s than the 1990s.  People got burned in the mid-70s and it took a long time to feel better.  When we are operating at full potential, we should have 3-1/2% to 4% GDP growth, and that will come eventually.

JA:  And in 2013?

ML:  I think GDP this year will be 2-1/2% overall because of federal and state problems, but corporate GDP growth will be a good bit better than that, assuming there is a budget deal at some point.  The first half of the year if we watch the government argue about spending, it could be a bit of a damper on growth.  If we regain faith that the politicians will be able to compromise and come up with some answers, the market will go higher.  Having our debt downgraded shook everyone’s confidence.    So the market is at 12-13 times earnings as a result.

If we get a budget deal we could get much stronger investor confidence, but in the short term, our ability to govern ourselves is the big issue.  Once that is resolved, the market will lift.

JA:  Thanks, Mary.

For AH Lisanti:  For financial intermediary use only.  Not for use with investing public.

The information provided should not be considered a recommendation to purchase or sell any particular security.  It should not be assumed that any security transactions, holdings, or sectors discussed were or will be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance discussed herein.  The views expressed reflect those of the portfolio manager as of 12/31/2012.  The portfolio manager’s views are subject to change at any time based on market and other various conditions. The performance reflected herein is not representative of performance of AH Lisanti individually managed accounts or comingled vehicles that AH Lisanti advises.

 

Soaring Automobile Sales Attributed to Superstorm Sandy, Low Interest Rates

Soaring November automobile sales were all over the news this week. Honda, Nissan, Hyundai and BMW had their best November ever, according to the Los Angeles Times  (http://www.latimes.com/business/la-fi-autos-auto-sales-20121204,0,2696209.story). Volkswagen had its best November since 1973.

photo courtesy of www.boston.com

photo courtesy of http://www.boston.com

Overall, imports did better than domestic brands thanks largely to new products like the revamped Honda Accord and Nissan Pathfinder, according to the Times report. A total of 1.1 million vehicles were sold in the month, 15 percent more than a year ago. Fuel-efficient cars, hybrids and small SUVs were among the most popular vehicles and “for the first time since it started selling hybrids in the U.S. in 2000, Toyota had serious competition in the hybrid market,” the Times noted.  In only its second month of sales, Ford sold 5,000 of its new C-Max hybrid in November and 6,500 hybrids overall in the month.

Just how much to read into the sales totals is difficult to say, according to experts, because Superstorm Sandy was credited for bolstering the numbers. An estimated 250,000 vehicles were destroyed in the storm and the purchase of replacement vehicles probably skewed the monthly numbers. And, as we reported in October, low interest rates are also stimulating the auto market.

Over the long term, any increases in automobile sales should benefit small cap automobile industry-related stocks, which have been hit in recent years by the global slump in sales. Here are a few randomly chosen small caps:

Troy, MI-based Meritor Inc (NYSE: MTOR, http://www.meritor.com/) develops drivetrain mobility and braking solutions for trucks, trailers and specialty vehicles and aftermarkets in the transportation and industrial sectors. Its products are marketed globally under its Meritor brand or under the brands Euclid, Mascot, Trucktechnic and Gabriel, among others. In January 2012 Meritor sold its France-based axle operation to Renault. MTOR has a 52-week trading range of $3.83-$8.74 and a market cap of $427 million. It closed Dec. 4 at $4.42, up 11 cents on the day.

Detroit-based American Axle & Manufacturing Holdings (NYSE: AXL, http://www.aam.com/) designs and manufactures driveline and drivetrain systems and related components and chassis modules for light trucks, SUVs, passenger cars and commercial vehicles. The company’s products include axles, drive shafts, power transfer units, transfer cases, chassis and steering components, transmission parts and driveheads, among other products. AXL’s 52-week trading range is $7.93-$13.08 and its market cap is $765 million. It closed Dec. 4 at $10.22, up 10 cents for the day.

New York, NY-based Fuel Systems Solutions (Nasdaq: FSYS, http://www.fuelsystemssolutions.com/) designs and manufacturers alternative fuel components and systems for the transportation and industrial markets. Its components and systems control the flow and pressure of gaseous alternative fuels such as propane and natural gas used in internal combustion engines. The company operates in two divisions: IMPCO Operations and BRC Operations. In April 2011, IMPCO U.S. purchased NaturalDrive. FSYS’ 52-week trading range is $13.38-$29.41 and market cap is $294 million. FSYS closed Dec. 4 at $14.67, down 51 cents for the day.

Northville, MI-based Gentherm * (Nasdaq: THRM, http://www.gentherm.com/) is a global developer and marketer of thermal management technologies for a broad range of heating and cooling and temperature control applications. It’s also developing more efficient thermoelectric devices. THRM’s Climate Control Seat system, based on its proprietary thermoelectric technology, is being offered in more than 50 vehicles made by the world’s leading automobile manufacturers including Ford, General Motors, Nissan, Toyota, Kia/Hyundai, Land Rover and Jaguar, among others. THRM’s 52-week trading range is $10.06-$17.74. As recently as early October it was trading for more than$13. It closed Dec. 4 at $11.48, down 42 cents on the day. Market cap is $341 million.

Southfield, MI-based Federal-Mogul Corporation (Nasdaq: FDML, http://www.federalmogul.com/) is a global supplier of powertrain and safety technologies. Its customers are OEMs of automotive, light, medium and heavy-duty commercial vehicles, agricultural, marine, rail, aerospace, off-road and industrial applications as well as the worldwide aftermarket. It operates at 169 manufacturing, distribution and technical facilites. Last July Borg-Warner sold its spark plug business to FDML. Its 52-week trading range is $6.90-$17.97 and market cap is $706 million. FDML closed Dec. 4 at $7.14, down 15 cents for the day.

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

Record Low Interest Rates Sparking U.S. Automobile Market, Too

Record low interest rates have brought a much needed spark to the housing market in recent months, and some analysts are suggesting they are the reason for the uptick in another important industry: automobiles.

New car showroom photo courtesy of albertretail.blogspot.com

Automobile sales in September were made at the highest rate in four years, according to many reports including the New York Times (http://www.nytimes.com/2012/10/03/business/g-m-and-ford-post-lackluster-sales.html). The Japanese and German manufacturers, however, led the charge with the American car makers posting slightly weaker results. A total of 1.2 million automobiles were sold in September in the U.S., which works out to a 13 percent increase over 2011, according to the New York Times report. For the year, sales are up 14.5 percent over 2011.

Analysts suggest that “historically cheap loans,” new products and “better inventory management” are aiding the auto sales comeback. And fuel economy is one of the most important features sought after by customers.

The auto industry is the home of many small cap companies, many of them suppliers to the big automobile manufacturers. Most have been struggling in recent months due to fears of waning global demand and exposure to Europe, according to reports, and many are considered undervalued so the new strength in US sales has to be good news.

Here are some randomly chosen examples:

Racine, WI-based Modine Manufacturing Company (NYSE: MOD, http://www.modine.com/) develops, manufactures and markets of heat exchangers and systems for use in on-highway and off-highway original equipment manufacturer (OEM) vehicular applications, and to various building, industrial, and refrigeration markets. It offers power train cooling products, including engine cooling modules, radiators, charge-air-coolers, condensers, oil coolers, fan shrouds, and surge tanks; on-engine cooling products comprising exhaust gas recirculation coolers, engine oil coolers, fuel coolers, charge-air-coolers, and intake air coolers; oil coolers consisting of transmission oil coolers and power steering coolers; fuel coolers; and component assemblies and radiators for special applications. MOD operates mainly in the North America, Europe, South America, Africa, and the Asia/Pacific regions. Analysts writing in Investopedia and Seeking Alpha have suggested that if Modine’s current restructuring is successful, it could be poised for a turnaround. MOD’s 52-week trading range is $5.50-$11.64. It closed Oct. 3 at $7.46, down 1 cent on the day. Market cap is $351.5 million.

China-based SORL Auto Parts (Nasdaq: SORL, http://www.sorl.cn/) manufacturers and sells a wide variety automotive brake systems and other safety-related auto parts, mainly in China, although it also exports its products to 104 countries and regions. Its products are mainly used in commercial vehicles, including buses and trucks. On September 24 SORL announced a major contract win with Shaanxi Auto Group to deliver brake parts for the Deloong F3000 heavy-duty trucks. SORL stock is thinly traded, averaging about 24,000 shares a day. It’s 52-week trading range is $1.71-$3.64. It closed Oct. 3 at $1.88, down 1 cent on the day. Market cap is $30 million.

Northville, MI-based Gentherm * (Nasdaq: THRM, http://www.gentherm.com/) is a global developer and marketer of thermal management technologies for a broad range of heating and cooling and temperature control applications. It’s also developing more efficient thermoelectric devices. THRM’s Climate Control Seat system, based on its proprietary thermoelectric technology, is being offered in more than 50 vehicles made by the world’s leading automobile manufacturers including Ford, General Motors, Nissan, Toyota, Kia/Hyundai, Land Rover and Jaguar, among others. THRM’s 52-week trading range is $10.06-$17.74. It closed Oct. 3 at $13.11, up 17 cents for the day. Market cap is $388 million.

Torrance, CA-based Motor Car Parts of America (Nasdaq: MPAA, http://www.motorcarparts.com/) remanufactures alternators and starters for import and domestic cars and light trucks. Its products are sold to auto parts retail chains in the U.S. and Canada and to major automobile manufacturers for their aftermarket programs and warranty replacement programs. Its 52-week trading range is $3.96-$10.42. MPAA closed Oct. 3 at $4.55, down 12 cents for the day. Market cap is $66 million.

Pendleton, IN-based Remy International (pink sheets: RMYI, http://www.remyinc.com) is a global vehicular parts designer, manufacturer, remanufacturer and seller of aftermarket and original equipment electrical components for automobiles, trucks and other vehicles. Its products sell primarily under the Delco Remy, Remy and Worldwide Automotive brand names. Its 52-week range is $12.25-$21 and its market cap is $536 million. RMYI stock is listed at $16.83 but did not trade Oct. 3.

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

Sold! EBay Buys into Alternative Energy Fuel Cell Power

Fuel cells made headlines in the major financial publications this week with the announcement that eBay is planning to build a new data center in Utah powered by, yes, alternative energy fuel cells. The new eBay data center will use approximately 6 million watts of power generated on-site by fuel cells made by Sunnyvale, CA-based, privately-held Bloom Energy, according to the New York Times (http://www.nytimes.com/2012/06/21/technology/ebay-plans-data-center-that-will-use-alternative-energy.html?scp=1&sq=james%20glanz%20ebay&st=Search).

eBay logo courtesy of LiewCF.com

While the new center, which will also serve eBay’s payment service PayPal, will be hooked up to the electricity grid as a backup, the news is considered a major victory for alternative energy backers, fuel cell believers and the environmental industry in general which has long complained that Internet companies are too often relying on coal power to run their data centers.

The Times’s story notes that fuel cell arrays are being used by major corporations including AT&T, Kaiser Permanente and Wal-Mart but nothing of this scale. Nearly all comparable data centers now draw the majority of the power from the grid.

Bloom Energy’s version of fuel cells are “essentially large batteries whose charge is maintained by by the hydrocarbon energy contained in natural gas,” according to the Times. Since the price of natural gas has plummeted in recent years, fuel cells have become more economically competititve, the story notes. And since the charge in the Bloom Energy cells is maintained by chemical reactions, not combustion, important efficiencies are gained. Another advantage is the fuel cells generate energy on-site, meaning no energy is dissipated as it travels along transmission lines.

All great news for environmentalists, Bloom Energy and, hopefully, eBay. But does it translate to hope for the mostly struggling small cap fuel cell companies? Based on investor reaction to the news, there seemed to be little benefit, at least initially.

Lathan, NY-based Plug Power Inc. (Nasdaq: PLUG, http://www.plugpower.com/) manufactures fuel cell systems for industrial off-road markets and stationary power markets. The PLUG stock, which was as high as $9 in early 2011, has traded much lower in recent months. Its 52-week trading range is now $1.11-$2.71 and its market cap as of June 21 was about $44 million. Roth Capital cleantech analyst Phillip Shen initated coverage of PLUG a year ago with a buy and a price target of $4. PLUG stock closed June 21 at $1.12, down 2 cents for the day.

Danbury, CT-based FuelCell Energy Inc. (Nasdaq: FCEL, http://www.fuelcellenergy.com/) makes a variety of fuel cells and its stock trades actively, more than 2 million shares a day on average. But apparently its second quarter numbers showing revenues down 15 percent from a year ago has soured investors. Its 52-week trading range is $0.80 to $1.95 and it closed June 21 at $1.06, up 2 cents on the day.

British Columbia-based Ballard Power Systems (Nasdaq: BLDP, http://www.ballard.com/) manufactures and sells fuel cells and fuel cell materials for the automobile and other markets. News from Ballard included business partnerships with Brazilian and European bus companies. But the company this week announced a revision in 2012 revenue and adjusted EBITDA downward due in part to contract negotiaations with a Brazilian customer. The stock, which was a high as $2.42 in April 2011 has dropped in recent months. It closed June 21 at $1.12, down 5 cents. Average daily trading volume is now about 124,000 shares.

Ontario, Canada-based Hydrogenics Corp. (Nasdaq: HYGS, http://www.hydrogenics.com) designs, develops and manufactures hydrogen generation and fuel cell products based on water electrolysis technology and proton exchange membrane technology. HYGS recently announced a significant order for a “power to gas” project for energy storage in Germany. The 52-week trading range of HYGS is $4.47-$7.10 but the stock trades lightly, about 7,500 shares a day. Its market cap is about $38 million. HYGS closed June 21 at $5.85, down 42 cents for the day.

A Week’s Worth of News Items from the Alternative Energy Front

There was a scattershot of interesting news this week on the alternative energy front. A sampling includes:

  • A123, a lithium-ion battery maker characterized as “shaky” in a New York Timesheadline this week because it

    Chevrolet Spark photo courtesy of leasetrader.com

    has been running short of money, recalling batteries and has failed to complete its new Livonia, MI factory, announced on June 12 a “breakthrough” in its technology which the Times said could “well determine the fate” of the company. The breakthrough is “a new chemistry that could permit the creation of a simpler, lighter, longer lasting battery pack that does not require a system to cool or heat it.” (http://www.nytimes.com/2012/06/12/business/energy-environment/a123-us-backed-battery-maker-claims-breakthrough.html?ref=a123systemsinc). General Motors still believes in A123 and selected it to supply the batteries for the all-electric Chevrolet Spark minicar expected to debut in 2013. A123 traded for 98 cents on June 8 and closed June 15 at $.

  • As usual, there was good news and bad news for the solar panel business. The good news, as reported in the Wall Street Journal, citing a study released June 12 by the Solar Energies Industry Association and GTM Research: The market for solar panels in the U.S. should double in 2012. About 3,300 megawatts of solar panels are expected to be installed in 2012, making the U.S. the world’s fourth largest with a 11 percent share of the global market, according to the WSJ. The bad news: the new tariff is expected to be installed on panels imported from China will slow growth in 2013.
  • Also on the solar energy front, the California Energy Commission unanimously approved new guidelines requiring new homes and commercial buildings to have “solar ready roofs.” That doesn’t mean the roofs will all need to have solar panels installed, only that they need to be designed to accommodate a solar power system installation.  According to reports on AOL.com, citing the Los Angeles Times and the Sacramento Bee, the new rule won “begrudging approval” from the commercial building industry, but was applauded by utilities and environmental groups.
  • Because a federal tax credit that subsidizes the wind industry is expected to end at the close of 2012, many of the small companies in the various facets of the wind turbine industries (makers of towers, blades, gearboxes, etc) could find themselves in dire straits, according to Bloomberg BusinessWeek. The story cites a report by the American Wind Energy Association that suggests an estimated 10,000 workers in the U.S. will be terminated “in anticipation of the slowdown,” according to the story. GE, the market leader in the wind energy business, is already closely scrutinizing its business partners to see which might be winners or losers that won’t be around next year.

We have covered both solar power and wind power in recent weeks. Looking back at the companies we mentioned, here are the biggest gainers in each since we last checked:

For wind power, which we last covered on June 1, the winner is St. Louis-based Zoltec Companies (Nasdaq :ZOLT, http://www.zoltek.com/ which makes carbon fibers used to reduce weight in turbine blades so they spin faster. ZOLT closed at $7.95 on June 1 but then moved up to close at $8.36 on June 15. 

For solar power, which we last covered on May 18, the winner is Ontario, Canada-based Canadian Solar (Nasdaq: CSIQ, http://www.canadian-solar.com/ ), which sells a variety of solar products. Last summer CSIQ traded for over $12 but by late August it had dropped to about $6.75. It closed May 18 at $2.70, down 25 cents on the day. On June 15 it cloased at $3,49, up 22 cents on the day. Its market cap has jumped from $117 million to almost $151 million.

Small Caps Hoping for Lift from Booming U.S. Auto Sales

The month of May was a bummer for most investors, judging on the big hit all the major indexes took. But not for the nation’s Big Three automakers: Ford, General Motors and Chrysler, according to Marketwatch (http://www.marketwatch.com/story/big-three-auto-sales-roar-in-may-2012-06-01?siteid=bnbh). With the help of

Photo courtesy of Port Clinton Ford

 

looser credit demands for buyers, all three posted double-digit sales growth, according to the story, which was picked up by most major news outlets.

For General Motors, May 2012 was the best month of sales since August 2009 and 11 percent better than a year ago. GMC vehicles and Buick were up 19 percent and Chevy was up 10 percent, noted the Marketwatch piece. For Chrysler, which is adding production capacity “as quickly as possible,” it was the best month in five years. U.S. sales for Chrysler rose 30 percent in May and Dodge posted its 26-th consecutive month of year-over-year sales growth, the Marketwatch story noted.

Ford’s U.S. sales rose 13 percent led by the F-Series and E-Series trucks and the Fusion.

We’ve been covering a random mix of small cap auto dealerships and automotive-related companies that are suppliers, parts makers and partners of the major OEMs. Here’s a look at how they are faring: 

Duluth, GA-based Asbury Automotive Group (NYSE: ABG, http://www.asburyauto.com/) operates 79 auto dealerships in 18 metropolitan markets in 10 states. More than half of the dealerships are Toyota or Honda dealerships. Two months ago when we first looked at ABG it was trading at nearly $27. It closed June 4 at $24.30, down 49 cents on the day. Market cap is $766 million, 52-week trading range is $14.96-$29.62..

Bentonville, AR-based America’s Car Mart (Nasdaq: CRMT, http://www.car-mart.com/) sells older model used vehicles and vehicle financing at 113 dealerships in nine states. About two months ago CRMT was trading at just less than $44. It closed June 4 at $40.95, down $1.05 on the day. CRMT’s market cap is $384 million and 52-week trading range is $25.81-$48.24.

Houston-based Group 1 Automotive (NYSE: GPI, http://www.group1auto.com/) sells new and used cars, light trucks and auto parts, vehicle financing and insurance.  It owns and operates 131 franchises offering 31 automobile brands with 104 dealership locations, 25 collision centers in the U.S. and an additional five dealerships and three collision centers in the UK. As recently as April 3 it was trading for $59.15. GPI closed June 4 at $48.26, up 19 cents for the day. GPI’s market cap is $1.04 billion and 52-week trading range is $33.31-$59.97.

Charlotte, MI-based Spartan Motors (Nasdaq: SPAR, http://www.spartanmotors.com/) makes motor vehicle chassis and bodies for OEMs. Its stock was trading at about $5.50 last fall but has dropped pretty steadily since. SPAR had a good day June 4 when the stock closed at $4.43, up 23 cents for the day. The Wall Street Cheat Sheet recently picked SPAR as a company “to watch” based on the GM results and the general automotive industry. Market cap is $150 million and 52-week trading average is $3.65-$6.67.

Milton, GA-based Exide Technologies (Nasdaq: XIDE, http://www.exide.com/) manufactures lead-acid batteries for transportation and industrial energy applications. A year ago XIDE was trading in the $7.50 range, but has been punished by investors for disappointing Wall Street. The stock closed June 4 at $2.35, up 6 cents on the day. Its market cap is $184 million and 52-week trading range is $2.22-$8.

Northville, MI-based Amerigon * (Nasdaq: ARGN, http://www.amerigon.com/) makes a heated and cooled seat system now featured in 54 vehicle models manufactured by Ford, GM, Hyundai, Toyota, Nissan, Land Rover and Jaguar, as well as a cupholder for Chrysler.  Amerigon, which recently announced the acquisition of its main competitor, W.E.T. Automotive Systems of Germany, dropped as low as $6 in 2010 and then ran up as to highs of more than $18 last summer. But the market downturn has hit ARGN and its now trading just off its 52-week low. It closed June 4 at $12.05, up 21 cents on the day. Market cap is $356 million and 52-week trading range is $11.41-$18.18.

Racine, WI-based Modine Manufacturing Company (NYSE: MOD, http://www.modine.com/) manufactures a variety of thermal management products including radiators, engine and transmission oil coolers for the auto industry. This is the stock that Seeking Alpha in November 2010 listed as one of “10 Stocks on the Upswing.” It’s been on a downswing for the past year, considering last July it was trading for about $16 and closed June 4 at $5.73, down 21 cents for the day. Market cap is now $267 million, 52-week trading range is $5.67-$16.02.

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