The Ultimate Energy Stock
Investors are always looking for the next big thing.
But when they find it, what do they do? They rationalize reasons not to buy it.
If you had looked at shares of Wal-Mart (WMT) or Intel (INTC) in the 1970’s, you would have probably thought of plenty of reasons to avoid buying shares. But both companies became the next big thing in their industry.
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Today, one small niche company stands far ahead of other companies as a leader for the next generation of its industry.
But it’s in the alternative energy space… an area that gets a lot of skepticism from investors. Who can blame them? Even conventional energy sources like oil and natural gas have such big swings—but at least that’s a proven technology.
In order to be considered the ultimate energy stock, it should do a few things.
First, it should be innovative and truly capable of being the leader of its segment of the market.
Second, early adopters should be pointing the way to the company’s future success, even if the company is in such an early stage that profitability looks doubtful.
Third, it should be trading at a price that looks enticing, even if it’s not obvious that it’s not the next big thing.
One company fits all those parameters right now. It’s incredibly disruptive. But it’s set up to succeed, unlike other alternative energy names that have come and gone in the past such as SunEdison or Solyndra.
That company’s name is Bloom Energy (BE).
The Company: A Better Mousetrap
On paper, it’s an easy-to-understand company. Bloom Energy’s bread and butter is fuel cells.
Fuel cells are a device that coverts fuel into electricity through an electrochemical reaction.
I won’t get into the hardcore science of it here, but you should know that fuel cells have actually existed since 1838!
It’s similar to a battery. In fact, a battery is technically a group of cells. Typically, unlike a run-of-the-mill battery, however, fuel cells are rechargeable.
Despite being around for a long time, it took over a century for fuel cells to be used commercially.
That’s when NASA began using them to generate power for satellites and space capsules… where you can’t just send up an astronaut with a few AA batteries to replace the dead ones.
That technology has taken off, and today fuel cells are used to power commercial, industrial and residential buildings as well as vehicles like forklifts, cars, buses, boats, motorcycles and even submarines!
But the fuel cell that this company manufactures and sells is different than others.
It’s basically like a very skinny battery that’s always running.
Oxygen is fed into the cell on one side, fuel on the other.
Their fuel cells actually run on natural gas – a fossil fuel.
This means their energy server platform can always stay ON.
That’s different than other green energies that are vulnerable to outages from a variety of sources, like how solar doesn’t work at night or wind turbines won’t spin without wind. That’s what makes those tough investments to make—if the market sours on either of those investments, all the money that flew in will fly right out.
That’s not the case with natural gas. The consensus among energy analysts is that natural gas is going to stay both cheap and abundant for a very long time.
That means this company can be confident that their fuel cells won’t be running out of the actual FUEL anytime soon.
In fact, Data Center Dynamics reports that the gas grid in the U.S. is 100 times more reliable than the 99.9% reliable electric grid!
They’re also helping alleviate landfill use, where fuels often end up going to waste.
Because as opposed to regular sources where power can only be generated “in the moment”…
This company’s fuel cells allow for power to be stored and used later if needed.
No more blackouts or wasted energy!
But unlike solar companies who are trying to outfit one house at a time with panels on the roof, or major power plants that need years of red tape, bureaucracy and plans to satisfy government officials…
This company’s approach is MUCH different.
They’re going directly to big companies with their fuel
cells. Early Adopters: The Supplier to Corporate America
Bloom Energy is having huge success getting them to switch over to their cleaner, cheaper power for their energy-guzzling data centers, offices and stores. That’s huge. It fits our second criteria for the ultimate energy stock, a large, growing and enthusiastic customer base.
Already, its customers include:
- Lockheed Martin
- Home Depot
We’re not talking one-off, small-scale investments here, either. Consider how these customers are using power:
- Google’s headquarters have been powered by them for over 8 years now.
- Wal-Mart has more than 30 of these fuel cells installed at stores and distribution centers in California, where they provide as much as 75% of the power.
- They’re also on eBay’s campus in San Jose, CA as well as generating ALL of the on-site power 24/7, 365 days a year at their data center in Salt Lake City, UT.
- AT&T has partnered with this company on 34 alternative energy products in California, New York, Connecticut and New Jersey.
The list goes on and on…
In fact, almost 10% of Fortune 500 companies are using fuel cells for their electric needs. That’s nearly 50 companies… and Bloom Energy already has half that market.
Pricing: The IPO Bust Simply Sets Up the Next Boom
It’s a big deal when a company goes public. It goes from being privately owned— often from private equity or angel investors—to where regular folks get a chance to own a stake in the company’s future success too.
By the time a company has its initial public offering (IPO), the company is in full production. There’s no prototypes that still need to be tried. Whatever started as an idea on the drawing board has been refined into an actual product with actual customers.
That’s where Bloom Energy is right now, thanks to its IPO last year.
But, as they say, timing is everything. When a company goes public, those early investors have a chance to cash out. That can lead to an IPO that isn’t always the best for potential investors right away.
Consider Facebook (FB). When that social media company went public in 2011, shares fell from their original price. They subsequently beat the pants off the market—but at the time, it was considered a “failed IPO” for its early decline.
Bloom Energy likewise stumbled last year. So did markets as a whole. From their peak, the stock market declined nearly 15 percent in the last quarter of 2018. That kind of selling pressure can hit any company, whether it’s performing well as a business or not. For a recent IPO, Bloom Energy wasn’t immune.
After going public back in July at $25, shares rose as high as $25 in late September— before taking a 50 percent whack as the market dropped too.
Besides the market being weak, it’s easy to see why there was this decline as well. When the going gets tough, a company with a short operating history is seen by many as a liability, not an asset right now.
But as Facebook investors learned, that can be turned to a long-term advantage. In fact, shares are already starting to move higher. Part of that is simply because they got oversold in the short-term. But over the longer haul, they’ll likely rally further as the company continues to expand.
The company is still in an early stage where it’s growing its customer base, but it still isn’t profitable yet.
That usually happens after the IPO. But the IPO also allows the company to raise money by selling shares in the market—and in the case of Bloom, which allowed them to raise $400 million in cash on the books.
Remember, Bloom raised that money at the IPO price of $25 per share. That means today’s investors are getting a hefty discount to where the company was valued over six months ago. If the company were trying to raise $400 million today, they’d have to sell twice as many shares as a year ago. But since they have their IPO money in the bank, they don’t need to raise more cash right now. That’s a recipe for higher prices.
With revenues up 102 percent year-over-year, the company’s expansion is moving at an incredibly rapid rate that will allow it to become profitable in time. The recent drop in share price out the gate is hardly an issue when you have a rapidly growing company with a proven technology in a necessity like clean energy production.
Bloom Energy has it all.
They have a useful product—a fuel cell that runs on clean, cheap natural gas. Its fuel cells are small in scale, but large enough to power the needs of many of today’s large S&P 500 companies. Its proven technology and growing customer base enabled it to go public—just in time to get hit with the worst stock market performance since 2008.
That all adds up to a company that can potentially beat the pants off the market in the next few years.
It doesn’t matter what the price of oil does. It doesn’t matter what happens in the Middle East. It doesn’t matter if the economy goes up, down, or sideways.
Any company meeting the needs of its customers on a fast growth path will do well.
Bloom Energy is one such company, making it the ultimate energy stock right now. This modestly-priced ultimate energy stock can potentially hit $50 in the next two years—possibly more as it grows its customer base.