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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 (OTCQB:MKTY) 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) and Dell (NASDAQ:DELL).

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 (OTC:MDTL) 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), 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.