The Hottest IPO of 2009?
Web Editor, "Mad Money"
If only Washington loved natural gas the way it loves lithium-ion batteries. Then we’d reap the benefits of a cheap and abundant fuel, Cramer said, that’s cleaner than crude oil. But the Democrats adore this technology, and they’re doing everything they can to encourage its development. While that may not be what the Mad Money host wants, he did think it offered a chance to play a great initial public offering: A123 Systems.
“I’m here to help you make money. I’m not going complain about public policy,” Cramer said. “I think we have to starting thinking about making some money in A123,” the “hottest IPO of 2009.”
The company, which will trade under the ticker AONE, makes lithium-ion batteries for vehicles. The industry, it seems, is in store for some rapid development. The number of electric-autos models is expected to grow to 150 from 19 by 2014 and 200 by 2019. At the same time, the automotive lithium-ion battery market may be worth only $31.9 million now, but it could grow to over $21 billion by 2015 and $74 billion by 2020. That’s the “incredible growth” hedge funds and mutual funds crave, Cramer said, “and they are going to play it with A123.”
Batteries enjoy some big-time backing, too. A123 has already received through grants or loans $619 million from the state and federal governments, and a slew of private investors – General Electric , Qualcomm , AES and Motorola – are pitching in as well.
In addition to the backing, A123 sells to some big-name customers. The company’s consumer business, which includes batteries for more efficient power tools and other products, sells to Black & Decker and Gillette. The biggest division, transportation, works with BMW, Chrysler, General Motors, Delphi and Shanghai Automotive to develop batteries for electric vehicles, and A123 already supplies the batteries used in Volvo and Daimler’s buses. Lastly, the electrical grid business makes big battery systems for standby power and emergency services, where AES, the giant global utility, is the main customer.
On Wednesday, the company will sell 25.7 million shares at between $10 and $11.50 a share, and the proceeds will go to capital expenditures to build out the business. Based on a comparison with Ener1 , another fuel-cell company, Cramer estimated a fair price of between $12.50 and $19 for A123. Neither firm is profitable yet, so the valuation had to be based on revenues. But A123 deserves a premium multiple, he said, given “it has more customers and better relationships with them.”
Investors should buy 500 shares at $13, 300 at $15 and a final 100 at $19 or higher, or some ratio thereof. AONE could go much higher, as did the much–hyped ethanol plays, but Cramer was adamant about not buying shares too far outside of his stated range.
“You have to take a pass in the mid-$20s,” Cramer said. “And you do not buy this one up in the aftermarket. Only go for it if you can actually get in the actual IPO.”
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