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In a recent thematic report, The Sixth Revolution: The Coming of Cleantech, Merrill Lynch cleantech strategist Steven Milunovich identified cleantech as the sixth technological revolution since 1771 and warned that “investors must pay attention because cleantech could revolutionize much of the economy, including the utility, oil and gas and auto industries.” The six historical inflection points identified by Milunovich were:

1771
The Industrial Revolution
Britain
1829
The Age of Steam and Railways
Britain spreading to Europe and USA
1875

The Age of Steel, Electricity and Heavy Engineering

USA and Germany
1908

The Age of Oil, the Automobile and Mass Production

USA spreading to Europe
1971
Age of Information and Telecommunications
USA spreading to Europe and Asia
2003
Age of Cleantech and Biotech
USA and Europe going global.

On the cover page of the report, Mr. Milunocivh observed that, Industries tend to be vertically integrated and centralized early on then diverge to become more horizontal and distributed. Energy markets are mostly centralized today; solar and wind farms might continue that trend. On the other hand, we think decentralized energy generation and monitoring through solar panels, distributed storage, and microgrids may be the wave of the future.” Later in the report, Mr. Milunovich described energy storage as “perhaps the toughest problem in cleantech” before pointing out that Energy storage is the holy grail of cleantech and a difficult problem” that must be solved before solar and wind can become more than niche technologies.

In simpler terms, energy storage is the heart of the cleantech revolution.

Most stocks have experienced major sell-offs over the last few months. However, if you compare the energy storage sector with the broader market, you find that hard times for the Dow and the S&P 500 have been savage times for the storage sector. In essence, the entire energy storage sector is on sale at incredible bargain prices. The following table uses percentage changes from 200-day moving averages to compare the relative performance of the energy storage stocks I’ve been following for several months with broader market indices.

Dec 11th
Market
200 Day
%
Close
Capitalization
Average
Change
Russell 2000 Index
^RUT
476.4
N/A
637.73
-25.30%
S&P 500
^GSPC
899.24
N/A
1,150.25
-21.82%
Dow Jones Industrial Average
^DJI
8,761.42
N/A
10,586.40
-17.24%
Ener1, Inc.
$8.88
$956.47 MM
$6.83
30.01%
Ultralife Corporation
$10.22
$178.42 MM
$9.92
3.02%
Hong Kong Highpower
$3.03
$41.07 MM
$3.46
-12.41%
Valence Technology, Inc.
VLNC
$2.31
$277.49 MM
$3.14
-26.43%
Advanced Battery Technologies,
$2.41
$132.02 MM
$3.77
-36.07%
Altair Nanotechnologies Inc.
$1.21
$112.68 MM
$1.91
-36.65%
ZBB Energy Corp
$1.71
$17.98 MM
$2.80
-38.93%
China BAK Battery, Inc.
$2.22
$128.04 MM
$3.68
-39.67%
Axion Power International
$1.15
$30.38 MM
$1.96
-41.33%
C&D Technologies, Inc.
$2.80
$72.04 MM
$5.95
-52.94%
Maxwell Technologies, Inc.
$4.97
$108.41 MM
$10.59
-53.07%
Beacon Power Corporation
BCON
$0.59
$52.12 MM
$1.27
-53.54%
Enersys
$9.54
$474.82 MM
$22.80
-58.16%
Exide Technologies
XIDE
$4.20
$316.79 MM
$10.43
-59.73%

I think the disparities are shocking! The three broad indexes are down an average of 21.45% from their 200-day averages. However average discount in the storage sector (excluding HEV and ULBI) is 42.41%. In effect, the entire sector is on sale at a 50% discount to the broader market.

Surprisingly, companies that focus primarily on the North American markets have suffered the biggest percentage declines. If Mr. Milunovich’s analysis is correct and energy storage is a key enabling technology for the cleantech revolution, then it won’t be long before governments worldwide begin to treat energy storage companies as strategic national assets and implement regulations and tariffs designed to keep home country battery production available for home country use.

We are currently witnessing a rare convergence of events where the cleantech revolution is or should be obvious to all but the most casual observer and energy storage, the key enabling sector for the revolution, has been brutalized to the point where it is trading at a 50% discount to the broader market.

Disclosure: Author holds a large long position in Axion Power International, has recently bought small long positions in Exide and Enersys and may make additional storage sector investments in the future.

Source: The Heart of Cleantech Sells at 50% Discount to the Broader Market