Two Top LED Lighting Stocks
Our Top LED Pick, Plus a Derivative Play
Some analysts aren't the brightest bulbs in the box...
While they were busy panning Cree and the LED boom in late 2007, we were backing up the truck — recommending Cree at $20, the cheapest the stock would ever be again.
Three years later, that same $2 billion under-the-radar stock now traded close to $80 the other day. That's a 300% gain in less than three years.
(I'm left to wonder whatever became of those over-paid, bashing analysts... )
But even at current prices, Cree is a great buy. And we still believe — as we did in 2007 — that it's going to $100.
Take a look at the growth behind these guys.
Just last night, thanks to strong demand for LED, Cree posted a ten-fold increase in Q3 profits.
Net income came in at $44.6 million (or 41 cents a share), crushing year-ago earnings of $4 million (five cents a share). Adjusted, profit per share was 47 cents.
Wall Street was only looking for 44 cents.
Revenue was up 78% to a record $234.1 million. Cree increased its Q4 EPS outlook to between 48 and 51 cents per share — again, beating expectations.
Sure, the Street was hoping for more... but when are they not? Use today's pullback to buy even more.
And while we're bullish on Cree, there is a backdoor trade on it, too... And we'll get to that shortly.
But first, here's why we still like LED growth.
Back in 2007, Wall Street fools thought the boom in LED technology was overdone.
Some simple research would've proved the boom was just getting started...
President Bush had just inked an 822-page energy measure that included a future ban on 100-watt incandescent bulbs by 2012. It would make way for bulbs that use 25% to 30% less energy; lop an estimated $18 billion off annual U.S. electric bills; and it aimed to cut consumer electricity usage by 60%.
American Technology Corporation CEO Richard Prati believed Cree's LED technology would grow "astronomically" in coming years, and that LED technology would proliferate just as Internet companies did in the 1990s.
Prati maintained that LED could save consumers up to 90% on energy bills; that its "positive environmental reputation will attract consumers."
Royal Philips Electronics bought Genlyte for $2.7 billion as part of its LED-related company buying spree. And GE would soon jump in, too.
President Obama also got behind the technology, saying one of the most important steps is to set new efficiency standards on fluorescent and incandescent lighting:
Now I know light bulbs may not seem sexy, but this simple action holds enormous promise because 7 percent of all the energy consumed in America is used to light our homes and our businesses...
Between 2012 and 2042, these new standards will save consumers up to $4 billion a year, conserve enough electricity to power every home in America for 10 months, reduce emissions equal to the amount produced by 166 million cars each year, and eliminate the need for as many as 14 coal-fired power plants...
And by the way, we're going to start here at the White House. Secretary Chu has already started to take a look at our light bulbs, and we're going to see what we need to replace them with energy-efficient light bulbs.
Why, then, was the Street trying to talk Cree and the industry down? We have no idea. Even today, Cree is being downgraded by LED critics that think it's run up too much, too fast.
What we do know is that the Street missed out on buying a growth stock at $20/share.
Would it be too much to think they're trying to talk it down to buy on the cheap?
Here's why we still like it.
If demand continues to grow beyond 2012 — as projected — how can you pan this industry's growth?
You can't. It's just getting started...
We're talking about a market with 388% growth potential. This is a market expected to far exceed $1 billion by 2011, dwarfing the 2005 market value of $205 million.
Only a fool would short LED technology here...
My backdoor pick is Aixtron (AIXG), a leading maker of manufacturing equipment used to make the light-emitting diodes (LEDs) that the likes of Cree put out.
And Aixtron — just as Cree was three years ago — is a screaming buy right now at less than $40.
And only a fool would miss out on LED's backdoor trade. (And that's coming from the Pure Asset Trader team. We're 59 for 61 picks since February 2009.)
Stay Ahead of the Curve,
Ian L. Cooper
Energy and Capital
P.S. LEDs aren't the only sector set to explode as alternative energy technologies become mainstream... Wind, solar, and smart grid investors stand to make a killing as well. Especially in Canada.
Up north, several provinces are planning to phase-out coal-fired electricity in the next few years. British Columbia and Ontario have both rolled out hundred-million-dollar plans to replace those plants with clean energy solutions.
Stay tuned later this week for our full report on how to profit from Canada's cleantech boom.