Cree Ends My Muhammad Ali Moment

| About: Cree, Inc. (CREE)

Several months ago I had the electric company perform an energy audit on our home. One of benefits from the audit was that all of our incandescent light bulbs were replaced with more energy efficient compact fluorescent (CFL) bulbs at no charge. Over the course of a year, the CFLs should allow me to save a few bucks. On the down side, when you turn the lights on it takes them forever to fully light up. The first couple of days I often thought of the famous Muhammad Ali quote.

"I'm so fast that last night I turned off the light switch in my hotel room and was in bed before the room was dark."

Ali was turning the lights off and I was turning them on, but you know what I mean. I felt like I was faster than the speed of light. After a few days, it stopped being humorous and more of a pain in the butt. Here is the scoop according to Energy Star:

CFLs produce light differently than incandescent bulbs. In an incandescent, electric current runs through a wire filament and heats the filament until it starts to glow. In a CFL, an electric current is driven through a tube containing argon and a small amount of mercury vapor. This generates invisible ultraviolet light that excites a fluorescent coating (called phosphor) on the inside of the tube, which then emits visible light.

CFLs need a little more energy when they are first turned on, but once the electricity starts moving, use about 75 percent less energy than incandescent bulbs. A CFL's ballast helps "kick start" the CFL and then regulates the current once the electricity starts flowing.

This entire process typically takes 30 seconds to 3 minutes to complete, which is why CFLs take longer than other lights to become fully lit.

CFLs seem like a step backwards, but switching to more efficient lighting is the least we can do to help the planet. Fortunately, LEDs are an alternative that look and act like what we are accustomed and with CREE's recent announcement LEDs are finally price competitive. The Verge has a great cost analysis of the new CREE light bulbs and here CREE provides a glimpse under the hood.

Thanks be - CREE has restored order and Ali is still the only person faster than light.

There's more to the CREE story than just light bulbs. Here is a summary, by a hedge fund manager, in a recent IBD edition.

They make LEDs and related devices, which are becoming widely known. …they've grown, become vertically integrated. At first they made backlighting for cell phones, then TVs. Now they make chips and retail light bulbs. All the while, they've put money into R&D. They've bought fixtures companies. Their technologies have become the best in the industry in terms of cost of manufacturing and brightness per watt in their devices. They've done this with a combination of innovation and cash flow, and no debt. Even with all of this growth, they're still in the early stages of a revolution in lighting.

Let's get down to brass tacks and exam the action.

The chart has been a thing of beauty over the last 6 months. Notice the gap up in October. This was after a great earnings report. It is hard to see in this chart, but the low of the that day was the lowest point over the next three months. You could have bought on the B/O day, set a stop at the low and chilled out without coming under any pressure for the entire quarter. Now take a look at January. The exact same thing happened after January's earnings. The low for the quarter was the low of the B/O day. CREE announces earnings on 4/23. Just the mere fact that I'm writing about this virtually guarantees that there won't be a three-peat. LOL.

Regardless of what happens over the next few weeks - we are in the early days of the incandescent to LED transition. CREE is a great way to play it.


: Long CREE. Will most likely sell majority of position before earnings. As much as I think it is a winner, I don't trust Wall Street around earnings. Will look to buy back as soon as possible after earnings.

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