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Michael McDonald

Michael McDonald

Michael is an assistant professor of finance and a frequent consultant to companies regarding capital structure decisions and investments. He holds a PhD in finance…

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Top Plays In Energy Storage

Top Plays In Energy Storage

As the energy storage market starts to ramp up, investors should be on the lookout for nascent opportunities in the space. Energy storage, on a grid-scale in particular, potentially represents one of the biggest fundamental changes to utilities and the broader power generation industry in decades.

Unfortunately, as an emerging industry, a lot of the most exciting technological advances are happening with start-up companies that are not publicly traded at this stage. However, there are still some opportunities in the space.

It is worth mentioning though that, like so many previous emerging industries, the energy storage space is already littered with the dead and dying corpses of would-be industry giants. Firms working in the space like ZBB Energy (ZBB) and Axion Power (AXPW) have seen their stock prices tank and never recover over the last five years, while others like Graftech (GTI) have managed to attract buyouts but at much lower prices than some investors probably hoped for. Related: The Front-Runners In Fusion Energy

Nonetheless, despite the firms that have struggled in the energy storage space, there will be several eventual winners.

For investors looking for size, scale, and diversification, ABB and AES Corp both stand out. AES is a utility company that is also the owner of AES Energy Storage. The subsidiary supplies large scale energy storage and regulation products for grid-scale customers. The firm is a market-leader in the space, and if the business takes off enough, then in time a spin-off from the AES parent might be on the cards. Regardless, investors looking to capitalize on the energy storage market without taking too much risk can rely on AES.

ABB fits a similar mold. The firm is an industrial powerhouse with a range of businesses rivaling the likes of GE and Siemens. While it is better known in Europe, the scale and diversification of the company ensure that the company won’t be going bankrupt regardless of what happens in the energy storage market.

Related: Oil Prices Responding Positively To Bad News, But Why?

At the same time however, enormous success in energy storage is still only going to translate to modest gains for the heavily diversified ABB. With that in mind, this is one of those stocks that works for investors interested in a more conservative approach to leveraging a nascent industry.

In the camp of stocks that are a little more risky, but still unlikely to go bankrupt anytime soon are $3.2B EnerSys (ENS) and the widely controversial Tesla (TSLA). Say what you will about Tesla, but the stock has certainly captured the hearts of a considerable fan-base on Wall Street, and its products are broadly viewed as a cut above most cars out there in the electric vehicle market.

The firm has a substantial opportunity in energy storage, and just as importantly, it commands the clout to make a big splash in marketing at almost no cost. That ability could gain it a legion of business customers without much work. EnerSys is much more low profile, but its batteries are well regarded by the industry and it has a loyal customer base. The stock might be a bit expensive by conventional market metrics, but compared with most firms in the industry, it’s an enormous bargain. Related: A Bit Of Perspective On Gasoline Prices

Finally for those investors willing to go out on a limb with energy storage, there are several options. Small firms that could play a major role in the energy storage space include China Battery (CBAK), Active Power Inc. (ACPW), and Maxwell Tech (MXWL).

Of the three of these firms, Maxwell is probably the most interesting. The firm has a more stable customer base and the stock is starting to see benefits from an activist investor that has gotten involved with the firm. While still not for the faint of heart, MXWL does have reasonable revenues (2015 guidance at $160M-$180M) and it might be attractive to a larger firm if the energy storage market starts to take-off.

The safer way to play these small caps of course is through an ETF, but of course that dilutes the upside optionality on a single small-cap play. Overall then, the best way to play the burgeoning industry probably varies by investor.

By Michael McDonald of Oilprice.com

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