A Very Bright Light in the Marketplace
The Hottest Green Stocks of 2010--and They're Still Buys!
Easter Sunday, my wife and I took the kids over to her parents' house for dinner. My father-in-law, a computer engineer, is one of those people who love cutting edge technology. He bought the original iPhone on its release day, hooked a TiVo to his TV before I knew what a digital video recorder was, and became the first person I knew who dropped his landline telephone in favor of just a cell phone. So it was no surprise to walk in the door and see he had the iPad, released the day before, standing on the mantle displaying a slideshow of all his grandchildren.
While I find Apple's sales pitch--"A magical and revolutionary product at an unbelievable price"--over the top, if you've never handled an iPhone, the iPad certainly feels unlike any computer you've encountered. It's fairly light, at 1.5 pounds, nearly the height and width of a sheet of paper and a smidgen thicker than my iPhone 3GS at half an inch. And it has the great touch screen, screen-based keyboard and the many apps the iPhone has.
Will it sell 250 million units like the iPod has since 2001? Probably not, but my hard-of-hearing mother-in-law likes it for its closed-captioning video capabilities, while my wife is drawn to the fact that the TSA has decided an iPad doesn't need to be unpacked from carry-on baggage like a laptop does. My father-in-law simply takes joy in being the first to have it--and in an app of a cartoon monster that wiggles and shakes every time one of the kids makes a sound.
Me? I don't need an eReader (you don't need batteries to read an actual book) and I have my iPhone for email, stock updates and the very essential Major League Baseball App, which allows me to listen to Yankees broadcasts here in Red Sox territory. I am fascinated by the iPad techology though, I eagerly read the accounts of people who bought them, took them apart and wrote about what they found.
What's inside the silver shell? It's powered by Apple's in-house designed A4 chip, likely chosen over Intel, AMD or IBM chips because of Apple's desire to maximize efficiency, a 3.75-volt twin battery pack, touch-screen glass, speakers, logic board and an LCD screen--is backlit by LEDs--that can display 262,000 colors. As editor of Cabot Green Investor, it's the LEDs that get me excited.
LEDs, as you may know, are light-emitting diodes. They're not light bulbs as we think of them, but small semiconductors that emit colored light when turned on. They use dramatically less electricity than other light sources: To emit an equivalent amount of light, an LED uses less than half the power of a compact fluorescent light bulb with none of the mercury disposal issues of CFLs. LEDs also use less than 10% of the electricity an incandescent bulb needs.
LEDs also last far longer than a bulb--right now manufacturers claim a 20-year life span on LED lights, which is one reason municipalities like Los Angeles, San Jose and Oslo, Norway, have invested large amounts of funds up front to install LEDs in streetlamps and parking garages. Not only will they generate savings on electricity costs, but also on all of the labor saved from maintenance crews identifying and replacing burned out bulbs.
LEDs retrofitted to fit existing outlets are available for home use too (hardwired LEDs in new construction are even more efficient), but they are expensive, at $60 to $100 each. Prince Charles has installed LEDs throughout Buckingham Palace and now lights the palace using no more electricity than a teakettle needs. But for the average person, LED prices need to come down before they are seen as practical alternatives.
But it's in products that fetch premiums from customers like the iPad, iPhone, iPod touch, laptop computers, LCD television sets and cell phones, where LEDs have suddenly become the dominant lighting source thanks to their excellent color production and, more importantly, low power usage. An Apple laptop, for instance, can claim eight hours of battery life compared to the four hours of a comparable, non-LED lit Dell, thanks largely to the power-sipping LED. That's a huge advantage in the cutthroat consumer electronics market.
At the start of 2009, just 15% of new laptops used LEDs. By the end of the year, 75% of them did, according to reported estimates by Cannacord Adams analyst Jed Dorsheimer. Laptops need 50 LEDs each, freestanding computer monitors need 100, and LCD televisions, the fastest-growing segment of LED users, need 300 to 500 LEDs per set. It's that type of demand that pushed the LED industry, in the words of another analyst, "dangerously close" to full capacity of 75 billion units last year. And this year, demand is projected to grow double-digits.
And while all of that is going on, manufacturers are striving to get the price of LED replacement lighting down to more palatable levels for consumers. Last year, $50 million of light bulb-replacing LEDs were sold. The projected improved affordability of replacement LED bulbs is seen generating $1 billion in sales in 2013, and that will just be the start of the market's boom. By 2020, Philips Lumineds, the Dutch company which is a leading LED bulb supplier, has said it expects the overall LED market to grow 1,000% from 2009 levels to $100 billion in global sales or more.
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All of that growth probably has you thinking there must be some great stocks to consider. And you're right. I've mentioned before in Cabot Wealth Advisory about Cree, a North Carolina company that is one of the leading LED suppliers to the marketplace. I still like Cree Inc. (CREE), but I want to tell you about another company in a different part of the LED market--Long Island, New York-based Veeco Instruments. Veeco is one of three major suppliers of what are called MOCVD (metalorganic chemical vapor deposition) tools. Essentially, Veeco makes the tools that allow LED crystals to be grown. Veeco has been around for 30 years, having a long-established business in the now-commoditized data storage field. Business later evolved into serving solar cell producers, many of which use processes similar to LED manufacturing, making the company's expansion to LED equipment a natural and easy move.
Revenues fell in 2009 due to a drop in hard drive prices and the lack of capital spending from customers, but that is being made up for now, thanks to the tight LED market. For the current quarter, the company expects sales of $150 million, which would be a 140% increase over the prior-year period. Veeco plans to double MOCVD tool capacity by year's end to 120 units (MOCVD tools are low-volume, high-price products). And with the tight LED market, they'll sell them all; one Chinese customer has even been reported as saying it wants to buy 200 more of the tools. Veeco has 300 patents that create a nice wall against its European and Japanese competitors.
Cabot Green Investor subscribers bought Veeco on March 19 around 39; shares are now at 50 and I still consider them ripe to buy. We also bought Cree on January 12 around 58; shares are now at 83 and looking great. Last week, we added another smaller LED player with a unique niche and huge growth potential, and we are already up 7%.
It's presenting these types of investments to our subscribers that gets me truly excited as the editor of Cabot Green Investor. And the Green sector is just starting its turnaround from the past two years, meaning the time is perfect to get in on the action. I hope you'll consider joining us.
All the best,
For Cabot Wealth Advisory
Editor's Note: Brendan Coffey is the editor of Cabot Green Investor, which has recommended three excellent LED stocks this year. All are doing well and have extraordinary potential to run higher in the weeks and months ahead. Order Cabot Green Investor today to get his latest recommendations, complete with fundamental and technical analysis, market timing advice, buy and sell recommendations and much more! Click below to get started today.