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Posted by lkgeo1 on January 24, 2007, 12:10 pm
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Long Lasting Fuel Cell Batteries: Why I'd Buy Mechanical Technology
Friday January 19, 3:11 am ET
Michael Brush submits: Wouldn't it be nice to get a month out of your
cell phone battery without having to recharge? That may sound far
fetched. But it's the kind of mileage you could see from fuel
cell-based batteries in a few years. The futuristic battery is based on
what's called direct methanol fuel cell technology [DMFC]. An Albany,
NY-based company called Mechanical Technology (NASDAQ: MKTY - News) has
a version of the battery that can last for over 90 hours.
Plus it probably won't blow up in your lap.
Of course fuel cells, like many other kinds of "alternative
energy," are one of those areas that hold plenty promise -- and let
down -- for investors. So if you buy shares of Mechanical Technology,
limit your exposure and be prepared to think long term.
"This is one of our most speculative stocks," agrees Edward
Guinness of the London-based Guinness Atkinson Alternative Energy Fund
[GAAEX], which holds the stock. "We are in it eyes wide open coming
up against crunch time. The problem is it they are nearly a year and a
half from hitting a revenue upswing. The next 18 months are going to be
key."
But like Guinness, I'll give Mechanical Technology the benefit of the
doubt as a speculative play -- because insiders have been buying the
stock.
In November insiders purchased $262,000 worth for $1.81-$2 right before
the stock shot up to nearly $3. Then chief executive Peng Lim bought
$20,000 worth in the pullback in late December. You can get it even
cheaper now at around $1.80.
I'd be a buyer, for the following reasons.
Strong partnerships
Mechanical Technology is developing fuel cell batteries with several
high-profile partners, including the Duracell division of Gillette, the
cell phone maker Samsung, and the U.S. Air Force and the Army.
It has a low-powered battery for consumer applications (called
Mobion-1) that packs a lot more power than standard lithium-ion
batteries - the kind you use now. One problem: The battery is still
too big.
Mechanical Technology is also developing high-powered versions of this
battery for use by the military (Mobion-30) in applications like
satellite communications systems.
The company is in the demonstration phase for each. But it hopes to be
selling the military batteries in 2008.
End of the road for lithium-ion
Makers of lithium-ion batteries been cramming more and more energy into
smaller batteries, and they've pushed the limits. The result has been
exploding batteries - which recently lead to a massive laptop battery
pack recall by Apple (NASDAQ: AAPL - News) and Dell (NASDAQ: DELL -
News).
The whole affair heightens the interest in fuel cell batteries,
believes Rodman & Renshaw analyst Amit Dayal. Besides, portable digital
gadgets will continue to demand more memory and computing power to
handle more complex tasks. This calls for more power - and fuel cell
batteries may be the answer.
Pure methanol
Mechanical Technology develops fuel cells in its MTI MicroFuel Cells
division. Rodman & Renshaw's Dayal thinks the company's direct
methanol micro fuel cells are superior to those of competitors because
they run on pure methanol, which means they produce more power. The
batteries operate on a small cartridge of methanol, and they can be
"recharged" instantly by putting in a new cartridge.
Bigger potential upside
With a market cap of just $55 million, Mechanical Technology looks like
a better deal than competing plays like Medis Technologies (NASDAQ:
MDTL - News) which has a market cap ten times the size.
"There is significantly more upside in Mechanical Technology if this
does take off," says Guinness.
Cash burn
By a rough calculation, Mechanical Technology seems like it could go a
year or more without another dilutive capital raise. It looks
Mechanical Technology used up about $13 million to $14 million in cash
in 2006.
As of early November the company had $5 million in cash. It also held
shares of Plug Power (NASDAQ: PLUG - News), which the company helped
found, worth $11.6 million. It December, it raised $10.3 million by
selling stock to RG Capital Management based in the Cayman Islands.
While the MTI MicroFuel Cells division burns cash, the company also has
an instruments division that produced $1.7 million in revenue in the
third quarter, an increase of 19%. The company has no debt, and it has
a tax loss carry-forward of about $46 million.
Mechanical Technology may announce a new partnership in the private
sector this year, and the Department of Energy could increase funding
for alternative fuel cell technology. It expects sales in the military
sector to start in 2008.
The bottom line: These kinds of alternative energy plays often flame
out - so be careful with position size. But the recent round of
insider buying suggests this company is one of the safer ways to get
exposure to what could be a big deal in consumer electronics a few
years down the road.
Disclosure: Author has no position in above-mentioned stocks.
Related Articles
Read more articles by Michael Brush
Read more on the symbols MKTY, PBW
Subscribe to email alerts about Mechanical Technology Inc. (MKTY),
PowerShares WilderHill Clean Energy (PBW) and Energy Stocks
Read more on the themes Alternative Energy, Long Ideas
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