LED Stocks Get Some Respect

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Cree’s Wild Ride

On May 21, I noticed a big up-move in Cree, Inc. (CREE), a company I’ve been adding to most of my managed portfolios for the last year, at prices averaging around $18.  Checking recent news stories, I noted two articles on TheStreet.com which had recommended it over the weekend (as a beaten down stock and chart of the day.)  It turns out this was just the beginning of a feeding frenzy among the media which has gone on for the last couple weeks, bringing a lot of attention to what I call "the next compact fluorescent:" light-emitting diodes, or LEDs.  Highlights have been LEDs Emerge To Fight Fluorescents, by Peter Svensson, a story that got picked up by innumerable media outlets, and a Newsweek article by John Carey.  The icing on the cake was when Am Tech / JSA Research initiated coverage on Friday with a price target of $50, more than double the current price.  sccree.png

The attention is deserved.  White LEDs are rapidly catching up with CFLs  in terms of light output per watt.  Energy efficiency and light output continue to improve at rates more characteristic of the semiconductor industry (LEDs are semiconductors) than the lighting industry.  Since they don’t contain Mercury, are dimmable and instant-on, and last even longer than CFLs, the only thing holding LEDs back is price, and the lighting industry struggling to deal with a new type of lighting.  A typical replacement for a 60watt incandescent will still set you back $50-$100.  But given the advantages, they have long found application in specialty uses such as solar powered garden lights and rechargeable candles that flicker realistically and most people can’t tell from the real thing if they don’t look inside the holder or notice how cool they are to the touch.  They are also used in solar flashlights, which are not only a nice emergency light, but a great boon to the third world.

Other LED Plays

Given the growing awareness of energy efficiency as the greenest and cheapest way to reduce our carbon impact, I expect the investing public’s awareness of LED technology to continue to improve.  Besides Cree, another industry play which has taken off recently is Color Kinetics (CLRK), which specializes in taking the LEDs (which are tiny electrical components on their own) and designing applications for end-users.

For investors like me, who prefer to get in on a stock before it has taken off, it’s not to late to ride this boom.  A couple of speculative companies I also like have yet to feel the effects of the new media attention: Lighting Science Group Corp (LSGP.OB [Note: Ticker has been changed to LSCG.OB with a 20 for 1 reverse stock split.]), which makes LED replacements for traditional bulbs, and Carmanah Technologies (CMHXF.pk or CMH.to), which integrates LEDs into solar outdoor lighting applications such as runway lighting and billboards.

For more cautious investors, I think Philips (PHG) is the most serious lighting manufacturer about pursuing LEDs, and also produces CFLs, which are unlikely to go away just because LEDs are now appearing on the scene (something I hope will not be the case for incandescent bulbs.)

In additional to the usual disclaimer, I should note that I personally have substantial positions in Cree and Carmanah.  I’m basically a massive fan of LEDs… I even included them (and CFLs) in my New Year’s Top Ten Technologies for a Altenative Energy Future.

DISCLOSURE: Tom Konrad and/or his clients have positions in all the stocks mentioned here: Cree, Color Kinetics, Lighting Science Group, Carmanah Technologies, and Koninklijke Philips Electronics NV.
DISCLAIMER: The information and trades provided here are for informational purposes only and are not a solicitation to buy or sell any of these securities. Investing involves substantial risk and you should evaluate your own risk levels before you make any investment. Past results are not an indication of future performance. Please take the time to read the full disclaimer here.


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