Tuesday, March 22, 2011

"Ten LED Stocks, and a Wildcard" (AIXG; CREE; RBCN; NEXS)

There was a rumor making the rounds yesterday to the effect that Cree wanted to buy Aixtron. Not really credible. Around once per year Cree is rumored to be a target for General Electric. That one makes more sense but is less likely after GE signed their deal with RBCN last year.
We haven't checked in with Tom Konrad in a while, here's his latest:
Clean Edge says the phase-out of incandescent light bulbs is opening the way for low-cost LEDs.  These are the stocks to know.

Federal regulations are flipping the switch on our love affair with incandescent light bulbs.  Research firm Clean Edge's just-released Clean Energy Trends 2011 says this opens the way for a clean energy trend to watch: With compact-fluorescent light (CFL) bulbs the only legal competition in much of the world, Light-Emitting Diode (LED) bulbs need only the arrival of an affordable replacement for the standard 60 watt bulb in order to be met with "an immediate rush of policy-driven demand."

What is an "affordable" 60 watt replacement? Lighting Science Group (LSCG.OB) began providing a 40-watt replacement LED bulb through Home Depot for $20 in May.  Netherlands based Lemnis offers a 60-watt dimmable replacement for $25 online.  That's still high.  With CFLs selling for $3 or less each, the many advantages of LEDs (instant on, no mercury, cold tolerance, dimmability, and slightly better energy efficiency) are not enough to overcome the high first cost barrier.  Clean Edge quotes Lemnis CEO Warner Phillips, who thinks large chunks of the market will start shifting at $15, and the entire mass market will start to shift at the psychologically critical $10 price point.  He expects to see these prices in the next one to three years.  Lighting giant Philips (PHG) is predicting that LEDs will take 50% of the lighting market by 2015.

One to three years is about the right time frame for a stock market investment based on predicted future trends.  Getting in sooner often means your money is tied up longer than it needs to be, while investors who wait too long often find that others have bought first and already driven up the stock price.  I personally think the $10 LED bulb that can truly produce as much light as a 60 watt incandescent will take much closer to three years than one, and 50% by 2015 seems a bit optimistic to me as well.  I'm not rushing to get in, but I think the time to get in will be soon. 

Here are the stocks I'll be considering:

  • Lighting Science Group (LSCG.OB), mentioned above, has the advantage of selling retail products, and so may also have the advantage of capturing retail investor attention quickly.  They also retrofitted every Starbucks in California with LEDs last year.
  • Aixtron AG (AIXG) produces the equipment used for creating LEDs, meaning that the company's sales should lead those of LED bulbs.
  • Cree Inc (CREE) was a pioneer with early high-efficiency white LEDs.  Recently the company has been struggling with strong competition from Asian semiconductor manufacturers, but some observers think the stock has fallen far enough to look attractive again.
  • Epistar Corporation (2448.TW), is a Taiwan based manufacturer of LED chips and wafers that partners with customer to produce LEDs customized to their specific applications..
These are the names, along with General Electric that anyone with money in the space should be aware of.
See also:
Why China May Not Take Over LED Lighting Just Yet (CREE; RBCN; PHG; VECO) 
"LED Efficiency at Half the Cost" (CREE; GE; AIXG; LEDS; VECO)
 Dear GE: The Street Really Liked the Cree, Phillips Patent Deal (CREE; PHG) 
The Economist on LED Lighting and Energy Usage
And many, many more. Use the search blog box, keyword LED or CREE.