Lithium-ion battery maker A123 (AONE) is an object lesson in why buying into popular IPOs (initial public offerings) can be so dangerous—for investors who aren’t part of the initial insider crowd anyway.
Consider this post an explanation for why this stock has been on my watch list since September 25, 2009. And why I’m only finally starting to look at buying it now.
A123 went public in September 2009 in a high anticipated offering. Here was a startup out of MIT with technology that would make the company the next big thing in batteries for hybrids and all-electric vehicles. The stock opened for trading at $19.60, already above its offering price, on September 25 and then went on to run up to $25.77 as investors who hadn’t been able to get any shares before the stock went public rushed to get in now. Anybody who owned shares at the first trade price was looking at a 31% gain in a week. And some of those initial investors took their profits. The stock dropped to $14.70 by mid-November on the selling.
But many investors couldn’t sell. The investors who had put money into the company before it went public were required to hold onto their shares for a lock-up period of either 90 or 180 days, depending on exactly what kind of relationship they had with the company before the IPO. With approximately 72 million shares locked-up the stock recovered from that initial round of profit-taking to climb back into the low $20s by the end of December.
It’s been all downhill from there as first the 90-day lockup and then the 180-day lockup expired. (The 90-day would have expired, roughly, on December 25, and the 180-day on March 25.)
The shares closed at $9.63 on May 7. That’s 51% below the $19.60 of that first post-IPO day.
I think that’s a reasonable bottom for this stock.
The company announced first quarter earnings and revenue—a loss of 28 cents a share and $24.5 million, respectively—that were below Wall Street forecasts. But I don’t think that kind of quarterly number-watching is important for a company at this stage. Demand for the company’s batteries is growing as A123 adds more customers. The company announced that it was going to expand production capacity by 36%.
If I liked the general stock market more than I do at the moment, I’d move this stock off my watch list and add it to Jubak’s Picks today. But I’m going to wait for the recent market volatility to play out a bit. In the last week the market has moved from oversold to maybe a bit overbought. I’m going to see where that cycle goes next in the very short-term.
I have bought what I call a watch position for my personal portfolio. A watch position is a buy of a few shares, certainly way short of what I think of as a full position in a stock. But I find that holding a bit of the company focuses my mind and makes me pay closer attention as I try to figure out when to add a full position. And that’s where I am today with A123 Systems.
Full disclosure: I own shares of A123 in my personal portfolio.
DanielX,
I am extremely flattered by your vote of confidence, but I don’t think I’m worthy of sharing the same billing with Jim (not even in a secondary role). While it would be a dream job to work with Jim, I don’t have anywhere near his credentials.
But thanks anyway! 🙂
Jim,
May I suggest that you create something called “Ed’s Corner” on your website, such that Ed can post his opinion which is sometimes different from yours. I bet people would love it.
saurin:
I haven’t run into many people on this site who tries to “teach”, ED or myself. (Though I did learn something from your poem.) I mostly view comments on this site as exchange of thoughts. Free to express is part of democracy.
These days, too many websites let people post nasty and mean spirited comments. I hope people don’t get too used to it and forget this site requires some civility. (I remember Jim address this issue several months ago.) As long as it’s civil, more is better regardless which side you are.
I think it’s a great idea to keep an eye on this stock, but I also think it’s important what Jim and several commenters have said regarding caution in buying this stock now, both for short-term technical reasons, and because there is just NO standardization in the hybrid electric auto market or in energy storage tech generally. I will however, keep an eye closely on this, if for no other reason that it is one of the biggest NAMES in the area, and that’s enough to attract the herd whenever they feel good about this niche area of the market.
DISCLOSURE: I’m a perma-bear, a cynic, and always cautious with the little money I have to invest. I own no shares of AONE.
PS: I appreciate everyone’s comments and the diveristy of opinion, that’s what makes this useful. So let’s keep it congenial.
Ed’s a frenchman. I knew it! c”la whatt?
emanas,
Admittedly, I am overly proud of my NEWN purchase last year. However, I will also admit to my mistakes. Anytime you folks want me to talk about my past failures, I’ll be happy to oblige. I have plenty of them. 😉
To start with, I made numerous investing mistakes last year which ate up a lot of the profit I made from NEWN.
EdMcGon:
Thanks for your insightful comments, they do help me understand different points of views better. Thats importabt because im a newbie trying to learn the stock market.
I too enjoy Ed’s comments, taken with the proverbial grain of salt of course. As others have pointed out Jim plays with an open hand and puts his money where his mouth is, making concrete predictions. Ed usually tells how he has ALREADY successfully positioned his portfolio, which may rub some people the wrong way.
Oh i got it. “One who knows but knows not that he knows, is asleep. Wake him up”
I like regular comments from YX, DJ Barber, and especially Ed. Mike, when one is in a learning attitude one should keep the mouth shut.
Here is a little poem I learned in the school when I was little.
“One who knows not and knows not that he knows not is a fool. Shun him.”
“One who knows not and knows that he knows not, is a student. Teach him.”
“One who knows and knows that he knows, is wise. Follow him.”
I cannot actually remember one of them Which was about asleep and wake him. But i think the message has been delivered.
EdMcGon:
Although I do not agree with all of your ideas, I like your sharing of your knowledge with the members of this group. Thanks.
EdMcGon, I enjoy your views whether they go along with Jim or contrary to his. Keep up the good work and keep the good stuff coming.