“People are rabid about lithium and lithium stocks—and for very (seemingly) good reasons. With hybrid and zero emission vehicles in the news every day, it’s hard to imagine that lithium stocks won’t continue to experience fantastic growth. Just take a look at the striking new lithium-powered car that hybrid car manufacturer Tesla motors is selling for $100,000 as an indicator of the excitement around this commodity. While lithium demand is certain to increase, there’s plenty of lithium supply, and while I’m sure you can make money buying lithium miners, I’m more interested in the companies that turn the raw material into tomorrow’s batteries. That’s where the money will be made. ...
“Lithium is the lightest metal—so light that it floats on water. That’s why it’s the best metal for making a battery. Because when it comes to batteries, weight is a primary concern. Lead makes great batteries, but if you’ve ever picked up a lead pipe or changed the lead-acid battery in your car, you know that it’s very heavy. In fact, a cubic foot (about the size of a cinder block) of lead weighs an astounding 708 pounds. Nickel makes even better batteries, but it weighs 541 pounds per cubic foot. But lithium is even lighter than aluminum, which is usually perceived as a super-light metal. Aluminum weighs 169 pounds per cubic foot. By way of comparison, a cubic foot of lithium weighs just 33 pounds. But the real magic is that a cubic foot of lithium has more energy potential than 6 cubic feet of lead and 2 cubic feet of nickel!
“If you’ve bought a new cordless drill or even a fancy flashlight lately, you’ve probably seen the flashy new batteries that accompany these items. All of these items have the words ‘lithium ion’ plastered all over them. Lithium isn’t just some magical battery metal; it’s practically a brand unto itself. And like any good brand, lithium is synonymous with a whole slew of positive ideas. Lithium is independence from foreign oil. It’s green technology. It’s futuristic. It’s smart. If you take another look at the Tesla Roadster, I think you’ll agree it’s also good-looking. It’s a quality, high-tech battery material that somehow holds a charge better and longer than the lousy old varieties. In terms of its usage, lithium ion batteries are an end market that is growing 20% annually. They are the power source of most new handheld technologies and cell phones.
“While the global market is strong, the company I have recommended is based in China and its products are primarily used in domestic goods. Fortunately for this company (and for investors), China is one of the largest consumers of lithium ion batteries. The Chinese government estimates a 20% annual growth for the market through 2018. ... The market opportunity is huge. For that reason today I’m recommending New Energy Systems Group (NEWN, Amex) as a buy. The company is tied to all the growth themes listed above, and it shows in its financial results.
“With savvy acquisitions over the past few years, New Energy Systems has expanded to become a major player in the battery manufacturing business for consumer electronics. ... The demand for power is evident in New Energy’s financial results, which have been staggering throughout the past few years. Revenues expanded by 32% to $26.4 million in 2009. Unlike many fledgling manufacturers, the company reported a profit of $6.4 million or $0.89 per share last year. Moving to the current year, the company has already doubled last year’s revenue in only half of the time. For the six months ended June 30, 2010, net revenue was $45.9 million. Earnings expanded to $9.1 million or $0.72 over the same time. What’s more, management reaffirmed 2010 guidance ahead of third quarter earnings. The company’s management anticipates revenue of at least $88 million with EPS of $1.23 for the full year. ...
“The valuation using management’s conservative guidance results in a price to sales ratio of 1.2, and a price to earnings (PE) ratio of 6.5. Additionally, due to rapid expansion over the past two years, the company operates at just 60% capacity. When production demand picks up, manufacturing can instantly absorb it. ... Like all Chinese companies, numbers and past results need to be taken with a degree of caution, but if we respect the reported results, this company’s stock is poised to double to $16 per share over the next twelve months.”
Ian Wyatt, Top Stock Insights, 11/9/10
