Batteries, batteries, batteries. That’s all you heard about during this week’s 2010 North American International Auto Show in Detroit. Cramer’s a big fan of natural gas as a cleaner way to power cars, but everyone else – including President Obama – seems to love these lithium-ion batteries. But does that mean there’s a play on them?
“There is a way to make money here,” Cramer said, “but it’s where you’d least expect.”
See, the biggest players in the hybrid-electric battery industry are mostly Asian conglomerates like Panasonic/Sanyo and Toshiba or European firms like Bosch and Evonik. Cramer favorite Johnson Controls has a joint venture with France’s SAFT to build batteries as well, but the business isn’t big enough to significantly affect any of these companies’ stocks.
And there’s a problem when you look at the pure battery plays, too. Neither A123 nor Ener1 has a strong enough business to warrant a recommendation. Both may treasure their good relationships with BMW, Volvo, General Motors and even the Japanese Post Office, but they haven’t translated into cold, hard cash. At least not yet. What’s worse, the short interest in these two stocks – 30% for A123 and 20% for Ener1 – makes them too dangerous to own.
That left Cramer looking deep into the chemical makeup of these batteries, which is how he finally decided on Sociedad Quimica . About 60% of all the hybrid and electric battery technologies in existence are based on lithium, and SQM is the world’s number-one producer. So if Bank of America Merrill Lynch is right that these batteries will demand 200,000 tons of lithium by 2015, then this is the stock to play it.
Granted, 77% of Sociedad Quimica’s sales come from fertilizer, but the increased demand for lithium should kick up the share price. And only two of the eight analysts covering SQM rate it a buy, which leaves plenty of room for upgrades that would also boost the stock. Also, Cramer’s a big fan of the company’s home country, Chile, and it can’t hurt to have exposure to such a strong economy.
Cramer likes SQM at this level, just a couple of dollars off its 52-week high, but he likes it even more on a pullback. Investors can take their time, he said, because this thesis doesn’t demand immediate action.
So what’s the bottom line? The best way to play hybrid-electric batteries isn’t with an auto maker or even a battery maker.
“It’s with a darned fertilizer company,” Cramer said, “that also happens to be the world’s leading producer of lithium” – Sociedad Quimica.
Cramer’s charitable trust owns Johnson Controls.
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