The brightest idea: Invest in LED lights
This stock is the clear winner in a global trend that's just now ramping up.
By Michael Shulman
The U.S. Department of Energy is forecasting a 1.8% decline in electricity consumption due to changes in lighting led by LEDs. One or two LED light bulbs in each home in the U.S. would eliminate the need for an entire nuclear power plant.
There's no question we're on the verge of a boom in energy-saving LED lighting, with LED expected to dominate the market a few years from now. For investors, the question is this: who benefits?
There is only name worth discussing: Cree (CREE). Just as the LED lighting boom is in its infancy, the same can be said for CREE’s revenue and profit growth.
Cree has been around quite a while, as have LED technology and LED-based products. Government regulations have fueled rapid growth in demand; China has banned conventional light bulbs and it's nearly the same situation in Europe and the U.S.
Meanwhile, Cree has radically cut production costs for its LED products and sales are soaring dramatically. Its fiscal year 2011 sales of $988 million ballooned to $1.16 billion in 2012, then jumped again to $1.38 billion, a 19% growth rate.
In this calendar year, Cree has seen big quarter-to-quarter revenue jumps. Cree's sales rose 4.3% to $391 million from in the third quarter over the second quarter. Unit sales volume in bulbs was far greater than that as Cree cut prices, pricing some bulbs below the magic retail mark of $10. In the third quarter, Cree's profits gained 8% $30.5 million from the second quarter.
Retailers see sales boom for LED bulbs
Moreover, LED sales are just beginning to boom in retail -- and growth is going to be accelerating for many years. According to IHS, a market research firm, $547 million dollars' worth of LED lamps (bulbs) will ship in 2013. This is just the beginning -- IHS sees growth rocketing to $3 billion in lamp (bulb) sales in 2020.
The big year when LEDs begin to dominate the market is 2015, just 14 months away, according to McKinsey & Co. Cree’s Global Lighting Market Model predicts LEDs will hold 45% of the market in 2016 and slightly less than 70% by 2020.
There was a recent selloff in Cree shares when the company missed Wall Street expectations for the quarter -- with "just" 4.3% revenue growth and almost 8% profit growth quarter over quarter.
Think of that as an opportunity for short-term and long-term investors.
The yearly low is $29 and change; the high for the stock is $76, an incredible run. The stock is now selling for $57 and change and is, to my mind, cheap.
Yes, the P/E is astronomical and the PEG is high at 2.2, but this too provides a misreading of the stock. How many large, established companies grow in serious double-digits for both revenues and profits? Ignore the traders, short-termers and lemmings on Wall Street. Look at core fundamental demand and double-digit growth when considering Cree.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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