Text of NYT article about "back door" (cheap) fuel cell "plays."
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March 5, 2000
A Back Door Is Open to the Fuel Cell Party
By SANA SIWOLOP
When 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.
There are other routes into the industry. Maurice Schoenwald, co-manager of
the New Alternatives mutual fund, is especially keen on FuelCell Energy of
Danbury, Conn., which is developing fuel cells for the power industry.
On Friday, FuelCell announced that it was chosen by the Department of
Energy to help design a power plant using fuel cells. Its stock rose 19
percent to close at $87.25. Schoenwald says FuelCell's technology has the
potential to be twice as efficient as that of its rivals.
For cost-conscious investors, a pair of utilities offer another way to play the
business. Idacorp of Boise, Idaho, has an internal fuel cell business, as does
the Avista Corp., a utility in Spokane, Wash.
Sam Brothwell, an analyst at Merrill Lynch, thinks Avista's fuel cell business
may be spun off this year.
Still, Brothwell urged investors to tread carefully. "It's too early to say what
is going to be the right fuel cell technology," he said.
Copyright 2000 The New York Times Company |
