March 5, 2000
A Back Door Is Open to the Fuel Cell Party
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By SANA SIWOLOP
hen stocks run up suddenly and unexpectedly, it can be a sign that investors aren't doing some basic arithmetic -- and that can spell opportunity.
This may be the case with the shares of some companies involved in fuel cell technology. Their stocks, in the absence of major news, have posted sizzling returns this year.
Fuel cells are battery-like devices that, though still in the development stage, may some day fill a variety of power-generating functions, replacing, say, a car's combustion engine. Often, the cells use hydrogen to produce electricity, a relatively clean process.
Recent power blackouts, like those in New York and Chicago last summer, have left many computer-dependent businesses hungry for back-up power sources like fuel cells. Though analysts say that the technology shows commercial potential, the industry's losses are mounting. And the companies themselves probably won't earn a penny in profit for another four years, analysts say.
The stock that has caught most investors attention is Plug Power Inc., a fuel cell developer in Latham, N.Y., that went public in October at $15 a share and now trades at $120.875. That translates into a market value of $5.20 billion for an unprofitable company whose fuel cells, intended for home use, are still in the early stages of testing.
But the run-up hasn't provided nearly as much lift as one might expect for two companies that, together, hold an enormous stake in Plug Power. And that may provide investors with a reasonably priced entry point into the stock.
DTE Energy, a Detroit utility, and Mechanical Technology of Albany both helped to found Plug Power; each continues to hold a 32 percent stake in it. Steve Ballentine of Ballentine Capital Management of Avon, Conn., which holds positions in several fuel cell stocks, noted that DTE is now trading at just 8.8 times analysts' estimates of 2000 earnings. That's a 12 percent discount to its peers, he estimates.
And investors are getting a stake in Plug Power that is worth $1.66 billion at current prices, amounting to more than a third of DTE's market capitalization. "You're basically buying a third of Plug for nothing, as well as getting a stock that has a 7 percent yield," Ballentine said.
The math on Mechanical Technology, whose stock has nearly tripled since Jan. 1, to $70, is even better. The company, with a market capitalization of $820.3 million as of Friday, is actually trading for less than half the value of its Plug Power stake. Moreover, Mechanical Technology, which has positioned itself as an incubator for alternative energy technologies, holds stakes in other companies, like SatCon Technology of Cambridge, Mass., a maker of fuel cell components.
Hugh Holman, an analyst at Robertson Stephens, thinks that the incubator structure furnishes diversification and can result in big payoffs from initial offerings. |
