MagneGas: An Undervalued Opportunity In Alternative Energy
Mar. 21, 2014 8:09 AM ET
•MagneGas is a virtually unknown small alternative energy play listed on the NASDAQ.
•Its technology could have a profound impact on the alternative energy industry.
•We believe the company is currently undervalued, and shares should trade higher soon.
We recently established a long position in a virtually unknown yet impressive micro-cap called MagneGas Corporation (MNGA). This company operates in the alternative energy industry, has a $30 million market cap and is listed on the NASDAQ. A primary reason we made an investment is that we believe MagneGas's technology could be adopted by many companies in the alternative energy industry. Its 3 business segments are:
Number 1: Production of an advanced industrial fuel called MagneGas, which could be a threat to commonly used fuels like acetylene.
Number 2: Development of a technology of converting liquid waste into hydrogen based fuel or sterilized water.
Number 3: Development of a combustion technology, called 'co-combustion'. Co-combustion should allow coal plants to reduce CO2 emissions, while increasing energy output at the same time.
These business segments address large markets. For example, the waste-to-energy market alone is worth $20 billion.
After spending 100+ hours on research, due diligence and speaking with management, we think today's $1.20 share price is too low. Shares could trade higher if the company's new strategy starts bearing fruit.
Our previous energy stock picks worked out well
Our previous recommendations prove buying shares of undervalued energy plays can be profitable. For example, we were one of the first to cover Plug Power (PLUG) when it was trading at $0.65. This company was back then, just like MagneGas today, amidst an decisive turn-around, with improving financials, a new strategy and nearing an inflection point of explosive growth. After our call, shares peaked 17X in just 6 months. A lot of articles followed suit, and Plug Power is now one of the most debated stocks on the market. Another undervalued energy play we recommended was Lightbridge (LTBR) at $1.40, and in just 2 months time, shares returned nearly 300%. In case you missed those run-ups, we think MagneGas offers investors similar potential.
Trading note: beware the recent high volatility
We began writing this article when the stock was calmly trading at $0.80. However, in the last week, volatility spiked. The share price surged on a very high volume, surpassing the free float. This recent exceptional high volatility makes this stock certainly a riskier investment than any other average stock.
What happened? We attribute this to a press release published last Friday that the company has planned a major industry announcement to unveil its liquid biomass technology solution at the largest Bio Mass Conference in North America held this March 24th to 26th. The company will be using the targeted audience and heightened interest in biomass and related industries to bring attention to a technology that will, according to CEO Ermanno Santilli, "Reset the way we view and deal with liquid waste. Whether you are in the livestock, feed, waste energy/water and a number of other sectors, this technology will have a profound impact and we are excited to be able to premier it at this conference."
The press release sure sparked a lot of excitement and speculation. We, of course, don't know what the announcement is going to be, but it does sound promising. We'll soon know.
Why MagneGas technology could be important in alternative energy
There are 5 main challenges governments and companies worldwide would like to resolve:
•Governments around the world are pressing for lower CO2 emissions
•There is an urgent need for more energy
•Municipalities worldwide struggle with waste problems (sewage, etc)
•There is stricter legislation to operate greener
•The costs involved should be reduced
These are big challenges for sure, but we believe MagneGas could be a company that is able to address those challenges, because its technology is unique, scalable and advanced.
In order to gain some more insight, we initiated a conference call with the CEO, Ermanno Santilli and CFO, Lusia Ingargiola.
Hier geht es weiter: