LED Lighting Shares Should End 2013 On A Brighter Note

by: The Focused Stock Trader
  • Orion Energy Systems (NYSEMKT:OESX) $4.12
  • Revolution Lighting Technologies Inc. (NASDAQ:RVLT) $2.66
  • Cree Inc. (NASDAQ:CREE) $60.08
  • GT Advanced Technologies $8.23
  • SunEdison Inc. (SUNE) $7.93

"The Focused Stock Trader" has covered the LED lighting sector in the market at an early stage with the recommendation of Revolution Lighting in March, 2013 at $1.50 a share. In early August we reported on opportunities in the LED lighting sector again highlighting the exponential growth projections of the sector over the next five years. Those projections are also corroborated by a report on the lighting industry prepared by McKinsey stating that 70% of lighting worldwide will be LED-based by 2020.

Positive developments that have taken place to drive LED-lighting related stocks higher include improved revenues and earnings for LED lighting companies, increased institutional investor awareness and the introduction of new product offerings, such as different types of led solutions, programmable lighting, and energy management control systems. More importantly, the growth of the LED lighting industry will create a ripple effect that will influence the growth of other companies, such as semi-conductor, diode and component manufactures.

Institutional Coverage Upgrades & Presentations

The LED lighting industry has recently attracted significant interest from institutional investors, given the outstanding market potential. Two examples are Orion Energy Systems and Revolution Lighting Technologies. The companies put out a press release announcing that the management of both companies will be presenting at the Craig-Hallum 4th Annual Alpha Select Conference taking place on September 26th in New York. The Craig-Hallum event, noted for being one of the most prestigious investor conferences for small-cap growth companies, illustrates how the support and attention of the institutional investor community is a significant milestone for both the sector and for companies like RVLT and OESX.

"The Focused Stock Trader" reported on Orion Energy back in August. Since then, shares of Orion Energy have increased 40%. Orion reported strong Q1 earnings and completed the acquisition of privately held Harris Manufacturing and Harris LED in July. This important transaction expands the scope of the offerings from Orion Energy Systems and provides a key revenue driver for Orion Energy Systems as well.

Orion's stock price has reflected the positive news, hitting a 52-week high of $4.44 on September 20th before closing at $4.12, on more than 1 million shares, compared to the 3 month average of 150,000 shares.

Technical Analysis by Harry Boxer

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ORION ENERGY SYSTEMS (OESX $4.12 +0.23): After our last recommendation, OESX surged from near $2.50 to $4.30 in less than 3 weeks. Since then it has consolidated in a 6 week narrowing bull wedge and last Friday exploded out on over 1 million shares, the largest in 5 years. We now are looking for a sustained advance to the $5.75-$6 zone with a secondary target near $7.25.

RVLT will also be presenting at The Craig-Hallum Alpha Select Conference and was featured in "The Focused Stock Trader" back in March. Revolution Lighting has increased over 80% since our recommendation and similar to Orion Energy Systems, will benefit greatly from expanded institutional investor coverage and from a new acquisition. Revolution Lighting's acquisition of Relume Technologies in August gives an additional boost to Revolution's product suite, as Relume produces energy management control systems in addition to LED lighting components. Relume is designed to be a key revenue driver for Revolution Lighting the same way Harris will be for Orion Energy Systems.

Revolution also enjoyed substantial revenue growth, which resulted in the stock taking off soon after our recommendation at $1.47 and ultimately resulted in RVLT hitting a new 52 week high of $5.50 back on July 23rd. With share prices for both Orion Energy Systems and Revolution Lighting systems trading at relatively low levels given the pullback among stocks in the LED lighting sector both companies represent significantly underpriced opportunities in the market.

Technical Analysis by Harry Boxer

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REVOLUTION LIGHTING: When we first spotted RVLT, we recommended it near

$1.50 and subsequently it surged to $5.50 in less than 4 months. Since then a substantial pullback

If it can take out the $3.05-$3.10 resistance zone we are looking for a new up leg to begin with targets near $3.90-$4 then back into the $5.35-$5.50 zone.

New Opportunities from New Products

The LED lighting market landscape will be fueled not only by energy efficiency requirements but by a very competitive landscape with products originating from larger names and smaller names alike. Cree recently introduced a new LED lighting array system, along with several new LED Lighting products that will allow them to continue explosive top line growth. Much like Orion Energy and Revolution Lighting, Cree has also been the focus of institutional analyst coverage, when Sterne Agee provided positive commentary in August regarding the positive gross margin growth in the company's lighting products business lines. Sterne Agee also expects the company's overall gross margins to increase next quarter, reiterating its "Buy" on the stock.

Technical Analysis by Harry Boxer

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CREE INC.: LED lighting industry leader CREE experienced a massive run, taking it from the low $20's to $76 in 1 year! This was followed by a sharp setback after the earnings release disappointed in August, resulting in the drop under $54. Since then CREE has stabilized and lifted back to test the that gap near $62-$62.50. We are looking for a price volume surge across that resistance for starts to fill the gap to $70, then to $76 with a longer term price target of $85.

With the new competition in the LED lighting marketplace comes new opportunities, especially for companies who produce components for LED lighting manufacturers, such as GT Technologies Inc. GTAT not only makes silicon-based components used in solar panels and LED lighting but the company also produces components for the production of sapphire, a material with numerous industrial applications such as in LED controller wafer chips or a type of glass that, rumor has it, is reportedly stronger than Corning's (NYSE:GLW) ($14.67 -0.20) famous Gorilla Glass.

Shares of GT Technologies have jumped over 30% this month, driven by the stock being upgraded at Credit Suisse. Trading volume jumped from an average of 4.3 million shares to 6 million shares on September 20th.The Credit Suisse commentary reflected comments made by management in the company's most recent10-Q filing, stating "The use of sapphire in industrial applications and consumer electronics has been adapted to a limited extent. While the use of sapphire in these applications is still in the very early stages, it represents a potential market and may result in increased demand for sapphire manufacturing equipment."

Technical Analysis by Harry Boxer

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GT ADVANCED TECNOLOGIES: GTAT has been in an exceptionally strong up channel since it started its current leg last June near $3.45 and then advanced steadily to last Thursday's spike high at $8.22, a gain of 150% in less than 90 days! Although it could be overbought up in the short term, momentum is strong and could carry it up near $10 before a more substantial pullback consolidation takes place. Our target beyond that is $12-$12.50.

The ripple effect that growth in the LED lighting market has on companies such as GT Technologies will also affect other solar and semi-conductor manufacturers like SunEdison. Solar producers such as SunEdison would benefit from more efficient components in solar farms, long considered a shortfall of solar power systems. Components produced by companies such as GT Technologies would significantly lower the cost of highly efficient solar cells while significantly increasing the efficiency of solar power systems.

Recently, SunEdison voted to spin-off its semiconductor business in order to focus exclusively on large scale solar projects. SunEdison also completed a new round of financing via public stock offering, which will allow it to further develop solar farms such as the one it is currently developing in Chile, the largest of its kind in Latin America and the start of what SunEdison management hopes will be a showcase of how the company is transforming itself into a specialist in higher margin projects such as the Chilean solar farm.

On September 20th, SUNE traded 10.8 million shares, substantially higher than the average volume of

6.8 million shares.

Technical Analysis by Harry Boxer

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SUNEDISON: SUNE was in a terrific rising channel for 13 months taking it from under $1.50 to over $10. Then a sharp pullback took place knocking it back to near $6.25 to successfully test its major rising channel bottom. Currently, the stock is consolidating with KEY resistance near $8.35-$8.40. We are now looking for a price volume surge through that level to ignite a new up leg. Targets would then be $9.50, $10.50 & $12.75.

Due to the decrease in LED prices in the next few years, it should be safe to assume that there will be consolidation among the many current players in the LED lighting industry. The pioneers of the industry, such as Cree, General Electric Orion Energy Systems, Revolution Lighting and others will benefit from fast growing adoption by residential and commercial customers.


With the improved quality of brightness, reduced energy consumption and from higher return on investment offered by LED lighting, "The Focused Stock Trader" believes that the LED lighting market will continue to experience substantial growth for 2014 and beyond and will provide the impetus for the shares discussed above to appreciate dramatically. Please discuss the merits of these suggestions with your investment advisor before investing.

Disclosure: I am long OESX. I am long shares of OESX and I may purchase more shares and may purchase or sell shares of OESX and RVLT in the next 72 hours.

Business relationship disclosure: My associate editor Anthony Orbanic wrote the article. I am the founder and managing partner of Brite Idea's,LLC., a manufactures representative of Orion Energy Systems.

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