Another new material that will help with a new generation of smart phones, tablets, and other electronic devices is graphene. Two British scientists won the Nobel Prize for their work on the new material. Graphene is extremely thin, in fact the thinnest transistor currently known to the world. It is also flexible and extremely tough for its thinness.
As the technology continues to be refined and graphene becomes accepted, it will be in extremely high demand for flexible technology and other uses.. In addition to displays, graphene is said to be able to make solar panels affordable for the average consumer. Companies that manufacture and supply graphene stand to grow quite a bit and are ripe for investment. There are many companies that deal with graphene, and many more continue to start up; many are still privately held. I found six that are publicly traded and will let you know which ones can make us money and which ones to avoid.
CVD Equipment Corporation (CVV): CVD has a market cap of about $85 million and is not a pure graphene play. It has a strong balance sheet with $18 million in cash compared to only $3 million in debt. Its First Nano division is the one that handles the graphene. According to its most recent 10-K CVD had a backlog of $16.2 million versus $9.9 million at the end of 2010. Revenues were up 90.6% in 2011 largely fueled by the First Nano division which grew 107.5%. CVD reports first quarter earnings on next week on the 7th. I look for revenues to be slightly lower near $8 million for the quarter as CVD is in the process of moving to a new larger facility. While revenues will be lower for this quarter, I look for them to pick up substantially for the year as capacity is increased and CVD products continue to penetrate across the globe. The stock is trading at 45% above its 52 week low and a prime buy right now. I look for $20/share for 2012 and $28/share by the end of 2013 as demand and applications for this technology continue to grow.
Aixtron SE (AIXG): Aixtron has a market cap just over $1 billion. It is also not a pure play on graphene. Aixtron had a very rough 2011 with revenues dropping 22% and profits dropping 44%. LED is its largest segment and brought in 83% of 2010 revenues. It reports these drops are related to reduced orders and demand for LED products globally. A large focus of Aixtron is LED lighting, the market for which is growing slowly because of the high initial cost of the lighting. In that same report it also predicts a rough first two quarters of 2012 and possibly another rough year.
The biggest thing Aixtron has going for it is the balance sheet with $382.8 million in cash and no debt. The stock is battered from the terrible 2011 performance and is only slowly regaining price. It currently trades at a P/E of 97 and people appear to be buying on the hopes Aixtron will see its turnaround in the second half of this year. While I like the LED light technology and know it's the way of the future, it is just too expensive right now for the depressed global economy. I'm going to keep watching this one because it has lots of potential; I need to see another quarter or two within its guidance first.
GrafTech International Ltd. (GTI): GrafTech is a pure graphite play, but it doesn't yet have lots of products listed on its website involving graphene. GrafTech also had a rough 2011. For its first quarter of 2012 sales were down 21% versus the first quarter of 2011 according to its earnings release. The decrease was largely due to a decrease in the steel industry. In a press release from 2010 it talks about a thin and flexible graphite product for cell phones and other electronics, but it doesn't specifically call it graphene. It also has a current job posting for a graphene scientist focused on solar, semiconductor, energy, and transportation applications using graphene. Since GrafTech is a leader in graphite, it stands to reason that expertise would give it an advantage with graphene.
Its balance sheet looks bad, with only $12.8 million in cash and $443.2 million in long term debt. The debt increase was to help fund working capital and CapEx expenditures, according to its latest conference call. Those expenditures are going to grow its engineered solutions business. GrafTech is also carrying $555 million in inventory. Of that less than 20% is finished goods; the rest is raw materials or work in progress to meet an anticipated increase in customer demand. With $240 million in sales last quarter, the current inventories will only last two or three quarters.
I like the position GrafTech is in because of the growth potential. It currently trades at only 11 times earnings, which is low for a company working with this revolutionary material. While the steel industry may be declining, GrafTech is looking towards next generation uses for its materials and seeking to grow its engineered solutions segment (which is where graphene is located). It will be a slow growth process as the global economy recovers, but I think that leaves a great buying opportunity at current prices, and the ability to add if the stock drops from here.
China Carbon Graphite Group, Inc (CHGI.OB): The current share price under $1.00 raises a flag from the start. According to its recent 10-K the picture becomes even bleaker. While the ability to acquire and carry debt is more of a status symbol in southwest Asia than it is in America, it carries $45.5 million in short term loans and another $16.8 million in long term notes, with only $500K in cash on the books. In the report it also notes that it isn't paying off any of these loans, but simply rolling them over as they come due. Even with the $12 million it has in restricted cash, it still doesn't have nearly enough to pay the short term loans if the lenders should come calling. Given the current economic state, that is a huge concern.
On the positive side, sales increased nearly 61% for 2011 over 2010. But that is about it; its interest expense increased over 100% from 2010 and as a result more loans had to be taken to make advanced payments to suppliers. Could China Carbon Graphite Group be a sleeper that becomes a huge growth story? The down side of less than $1/share compared to a 52 week high that is a triple from current levels is surely exciting. But at this point, other companies in this article are much safer plays with double and triple potential.
While I think all the companies but China Carbon are quality investments at this point, GrafTech is going to give the best exposure and growth from Graphene. This is definitely a material and market to keep an eye on as it stands to change portable electronics as we know them. And once the technology is proven, I imagine it will be in pretty high demand giving many of these and the private companies lots of growth opportunity. I also like the ability for it to be used to lower the costs of solar power panels and think the lower prices could drive an increase in demand fueling additional growth for graphene. Regardless of the exact use, this material is a great development for investors that get in early.