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.
dkchinabiker,
NEWN was my best play last year. I bought it when it was still China Digital at 7 cents/share. After a reverse 10-1 split, I managed to sell it at the top of $10/share. Best stock move I ever made.
I’ve kept my eye on it since then. The financials continue to be golden, even for a small cap. I’m just waiting for the Chinese market to calm down before I buy in.
As for the uplisting, they have been talking about that since last year. While it would be nice, it won’t drive my decision in whether to buy it.
Rick Pearson is an intriguing stock reporter. I look at him more as an information source on specific stocks, rather than a stock picker. His actual recommendations have been hit and miss.
gusspresso24,
You are correct! I should have worded that better. I guess I should state that everything I say here is merely my opinion. As Dennis Miller would say, “I could be wrong…”
terryw,
I do have a bad tendency to just say what I think. A lot of people mistake me for being egotistical, when it really doesn’t have anything to do with ego, at least not for me. Truth be told, praise makes me a little uncomfortable, even if I earned it. I’m just trying to do the right thing.
As for my Motley Fool portfolio, I have a tendency to ignore it. That is how it got to be in the retched shape it’s in. It doesn’t reflect my actual portfolio at all. Also, one of my main problems with Motley Fool portfolios is they don’t take into account weighting at all. How much you carry in a position should reflect your faith in that position.
Of course, let that be a lesson: Never ignore your portfolio. 😉
I was one of the guys to participate in the IPO and get out with a nice profit. It had very good hype at the time; not so much right now. I believe Jim digs in deep and now has me reconsidering a position in this stock. The chart looks horrible and insiders are still selling at a significant level so I’ll just look for now.
BYDDF is a good play on hybrids. I have this one in my portfolio as a long term play. Just a note, there BYD F3 Sedan is one of the best selling cars in China.
NEWN is also part of my portfolio. Last week was a good time to buy-in to NEWN. It is an OTC looking for an uplisting on the NASDAQ. It still priced as a hiddend gem. Rick Pearson is calling this one with a $16-$24 price target. I don’t know if it will hit that price, but I picked it up for the same reasons mentioned above by ED.
http://www.thestreet.com/story/10717694/1/china-energy-stock-a-buy-ignore-the-math.html
Upside is right on the money…BYDDF is the play here.
http://caps.fool.com/player/edmcgon.aspx 😀
I’ve followed Jim for years, but have never written anything. Mostly, I don’t have time. I take the time to read many of EdMcGon’s comments and appreciate the frank views – particularly when they oppose Jim’s. It helps keep my emotions in check when evaluating a pick.
My hat off to Jim and Ed. Keep ’em up!
For those that don’t like to read EdMcGon’s comments, just skip them. 🙂 Everyone has potential to provide value to this website. I do think Ed some time speak with an “I know better than you” attitude without providing credential or performance to back it up like Jim Jubak has with his portfolios. I do think Ed could stand to use a bit of humility in his tone, but I do think he sometimes provide some pretty insightful thoughts. Preach on Ed 🙂
Ed, I think what some people are objecting to is when you come out with “significantly better” picks to Jim’s, when really as you explained afterwards you just have different beliefs/picks. Personally, I agree with Run26.2 where the more ideas and suggestions the better, so keep it up. But If you wanted to calm some of the heat against you, a slight change in the way you’re phrasing these finds would probably go a long way. Just my 2 cents.
AONE has never made money and it has a long way to go. For a profitable company (that will pay a one time dividend this year) look at BYDDF.
Run26.2,
Believe me, I am at the precipice of investing in China. I just need a tiny little nudge. However, I wouldn’t be averse to taking a small position similar to what Jim did with A123.
To all,
Thank you for the kind words!
ogowan,
If my hat ever gets too big, you’re welcome to knock it off my head! 😉
alexzhu… you could be correct. I was just guessing on where monies would flow for speculation/quick gains.
I think more likely chinese will put money in saving in stead of stock? IMHO, china is going to take strong action on speculation, the question is when and how tough…
Ed… as someone who is known to throw out stock ideas that are different that Jim’s but (sometimes) along the same vein, I say KEEP IT UP!
I’m a surprised by the number of people that seem to automatically trade with Jim. I think we all need to make sure the pick fits our investment tolerance.
As for Ed’s stock ideas…. I’m still not quite ready to jump into any Chinese stock. However, if the Chinese housing market crackdown continues, one would think that the Chinese would need a place to try and make some money if they can’t make it flipping houses. Hello stock market! Or Macau.
EdMcGon:
If you had a website I would read it in addition to Jim’s, keep up the good comments.
“Haters”:
Chill out!
I highly respect Jim’s and enjoy reading ED’s and many others’ comments as well. NB is right. It’s up to each individual to decide whats’ good for him/her. Go, guys!
BTW, I mostly view CNBC as entertainment, though it’s website has useful info. You know they have a show run. They are in the business of viewership. We meanwhile drawn to Jim’s blog for his in depth and unbiased analysis.
Jim:
You constantly cite Chinese reports. You must know the language. When did you learn it?
Jim narrows my focus and keeps me from being overwhelmed by all there is out there. He allows me to avoid a lot of the meaningless noise and to research the ‘right’ things. I find that if my conclusions agree with both Ed and Jim, the move is highly likely to be a good one.
Speaking of energy IPOs, I sure with Nanosolar would move toward an IPO.
The concern is how credible is the information, there is an old saying….BIG HAT, NO CATTLE…
EdMcGon;
I appreciate you sharing your picks, how about sharing your performance!
@Ed – I for one appreciate your insights. I use these types of blogs and forums to collect ideas and dont see anything wrong with more of them. Its up to each individual to ignore them or act upon it. Please keep them coming.
hailog,
Thank you, and you bring up a very good point. It is always important as an investor to listen to different sources. I’d be willing to bet Jim probably has a list of at least 10 different sources he reads every day, and maybe hundreds (thousands?) more he uses to find info on specific stocks, industries, and economies.
You mention CNBC. Like any other news source, you have to watch it with a discriminating eye. One thing I’ve noticed is they tend to be bullish on the market, which makes sense: If people are following the market, then they are more likely to be watching CNBC, which makes them ad revenue.
However, in their defense, CNBC is a fantastic source for business news. Just make sure you differentiate it from their fluff opinion pieces, since they don’t really draw a fine line in their presentation of either (on both their network and their website).
Just pitching in as a show of support to Jim and EdMcGon. I am long time reader of this blog and I can’t appreciate more how much value there is in the posts and comments. I am not sure if you watch CNBC, they are just a bundle of contradiction. They mostly just interview people and publish opinions. There are the current articles/opinions: “Another ‘Freefall’ to Push Dow Below 5000”, “Morici: US Stocks Poised for Big Rally”, “Apple to fall 50%” etc. They are all a bundle of contradictions. Just goes to show that no one can or can claim to predict accurately what’s going to open. Everyone has opinions and they base it on their own reasoning. As long as there is a reason laid out behind the predictions, it’s up to the reader to judge and make an assessment. Contradictory opinions confuse me at times, but hey, like Ed says ‘C’est la vie’. I am no better in making judgments if I listen to only one side of the argument.
Mike,
I don’t always disagree with Jim. In fact, when we agree, it tends to be a stellar pick.
And I never said my “ideas and insights are so superior to Jim’s”, nor would I. My ideas are just different. We both have different life experiences, so we have different views.
However, I am not fond of A123 at all. Take it for what it’s worth. Jim has his view, I have mine. C’est la vie.
Ed, Since your ideas and insights are so superior to Jim’s why even read his articles?
The only reason anyone sees your comments is that you’re posting on his website.
EdMcGon: Interesting findings. I somewhat start to like Chinese stocks, having more than 10 now on my extended watch list and “lightly” investing in 1 company (which is up 10% since I bought it less than 1 month ago).
Jim,
I am not buying into hype. This company still has to demonstrate that they follow some sort of reasonable business model (i.e. make money for at least two consecutive quarters). It might look cheap compared to what it used to be, but it is still expensive compared to many other companies with an established customer base and strong financial sheets.
I have it on my watch list, but not on a special one, which is all about over-hyped companies.
Haha
I have a watch position of a few shares as well. Down 16% or $20 and it hurts 🙂
Jim,
Thanks for the update! I wonder how this might affect A123: Reuters article has CEO Roell of JCI predicting slow adoption of hybrid/electric vehicles because of a lack of standardized batteries.
From the article:
Speaking at the Reuters Manufacturing and Transportation Summit, Roell said his most optimistic view was that electric vehicles and hybrids would make up 12 to 15 percent of the auto market by 2020.
“Because right now there are so many different suppliers forming their own technologies and their own packaging standards, I think scale is hard to come by,” Roell said.
“The industry is a very immature market, it lacks scale and it lacks standards,” Roell said. “What we’re going to see over time is that we’ll see chemistry and cell format and even battery management systems to begin to form standards, but it’s going to take some time.”
How long would this take? And how would this affect JCI, A123, and other auto battery makers in the short-to-medium term until standardization happens??
Mr. JJ,
What do you consider a full position in a stock?
Thank you!
Jim,
I have 2 significantly better lithium ion battery plays for you than A123:
1. New Energy Systems Group (NEWN)
2. China Sun Group High Tech Co. (CSGH)
Both are Chinese companies, and both have come down with the Chinese markets, but they are both stellar plays with strong financials, excellent ROI’s, low P/E’s, and little/no debt.
The only thing keeping me from buying them is I am waiting for the Chinese markets to clear up a little.