Some of the best investments start by making great observations about the world, Cramer said Tuesday. The most obvious way to play it, however, is not always the right way.
Take battery-powered, electric vehicles. CEO David Crane on Monday said it's going to be the next big thing. As such, he thinks its EVGO fueling stations will be a "game changer." Cramer thinks that's a "definite possibility," but doesn't think NRG is the way to play it because it plans to open just 50 stations this year and is mainly an utility anyway.
However, Cramer noticed the EVGO charging machine included the AeroVironment logo. The Monrovia, Calif.-based company is a market leader in high-voltage battery testing and advanced charging systems for electric cars, only it accounts for just 4 percent of AeroVironment's business.
Cramer was looking for a pure play on electric car batteries, but couldn't get behind Ener1 or A123 Systems . Both stocks have been "real dogs" lately and he doesn't see any catalysts coming that would justify the risk in owning these "super speculative" names.
In the end, Cramer came across Polypore International , which gets 70 percent of its revenues from batteries. The Charlotte, N.C.-based company makes separators for batteries, which basically membranes that prevent contact between electrodes. All batteries need separators and Polypore's products are used in both lead-acid and lithium-ion batteries. In fact, it controls 85 percent of the lithium-ion battery business. Of the few lithium-ion battery-powered cars on the road, Polypore is used in most of them, including the Chevy Volt, BMW 7-Series, Hyundai Sonata and Mercedes S400. To stay ahead of the competition, Polypore is building out 10x the manufacturing capacity of its peers in the next five years.
Polypore's lithium-ion business is so profitable, Cramer thinks it would be better suited as a stand alone company. Based on where similar companies trade, he thinks its lithium-ion battery business could be worth $1.75 billion on its own company, which is equivalent to 87 percent of the current company, or $38 a share. Cramer computed this figure by using a 10 multiple on the $175 million in sales the division is expected to garner in the next year. It may sound like a lot, he said, but A123 traded at 13 times sales and Tesla Motors currently trades at 15 times sales.
When Polypore's lead-acid battery, health care and industrial filtration businesses are factored in, Cramer thinks the stock could go up by 20 percent to $53.50 on news of a break-up.
"There’s no good pure play on electric car batteries out there right now, but Polypore has a great battery biz and it could unlock a lot of value simply by splitting off its sexy, fast growing lithium-ion battery division," Cramer said. "They say breaking up is hard to do, but this break-up just makes too much sense not to happen."
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