A Perfectly Timed IPO

Andy Obermueller's picture

Friday, September 18, 2009 - 11:49am

by Andy Obermueller

I'm pretty sure I've discovered the next winning "green" tech company.

Not only does it have serious technology to bring to the table, it has the most powerful financial force on the planet backing it up. This company, which is developing the batteries that will be used in the next-generation of electric cars, has the support of the most important investor in the world.

It ain't Warren whats-his-name from Omaha.

It's Uncle Sam.

The U.S. government has awarded $2.4 billion to battery makers, $249 million of which went to this company, called A123, in its bid to produce better and better automotive batteries.

(The IPO, the shares inked a quick +20% gain in just a few months. I still hold the shares in my Government-Driven Investing Portfolio, where they can continue to build on their robust gains as policymakers order more and more of the company's services.)

Now, when I talk about car batteries, I'm not talking about your father's trusty Die Hard. The latest batteries aren't something you can go pick up at Sears and drop into your LTD with a crescent wrench and a little elbow grease. They don't just help start the car, they power an electric drivetrain. These advanced batteries are larger, more powerful and use advanced lithium-ion technology to supply enough juice to push a car through traffic for 40 miles without recharging, which is more than enough to get most motorists through the day.

These vehicles are The Next Big Thing. They're already in production in China, and the world's major automakers are readying the electric models for the U.S. market.

The anticipation for these cars is building, and the demand is expected to be brisk. The President of the United States can't stop talking about the upcoming release of the 230-mile-per-gallon Chevy Volt. The Nissan Leaf has caused a stir with its even higher claim of 367 miles to the gallon. And these new cars are hitting a market where far more vehicles are expected to be sold, particularly in fledgling markets like India and China.

Fact: The global automotive fleet is expected to quadruple, to three billion vehicles, during the next 40 years. A good number of those cars, if not a majority, will be built around high-tech batteries made by companies like A123 instead of around capacious gasoline tanks. And if you don't like the idea of investing for the next 40 years, then give the next three years a try. A study released earlier this summer says the worldwide demand for lithium-ion materials will add up to $22.8 billion by 2012.

But this story gets better still.

Not only does this government-supported company own the hot technology in a hot sector, but it's also bringing its shares to market at the high point for the year. The Dow is at its high for 2009. The S&P hasn't seen its current level of valuation for several years. A123 has perfectly timed its initial public offering, which it first filed paperwork on more than a year ago, to launch as investors are feeling more optimistic than they have in an ages.

And you don't have much time to get ready.

This IPO is scheduled to hit the Street in four business days, on September 24th.

You don't want to miss out on the gains that this offering is poised to generate.

A123 was founded in a lab at MIT in 2001. Its current investors include venture capitalists and investment houses as well as corporate titans like GE, Motorola, Procter and Gamble and Qualcomm. And while A123 didn't get the contract to supply the ballyhooed Volt, the government did give the company a huge vote of confidence in the form of the massive quarter-billion-dollar contract to build a large-scale battery plant.

This is not my first foray into the battery business.

In fact, earlier this month, I recommended a Chinese battery maker to the readers of my Government-Driven Investing newsletter that has since returned +40%. The company I recommended is poised to supply Asia. A123, for its part, with the support of Uncle Sam, is likely to be a leading supplier to the U.S. automotive market, which is currently the largest in the world.

IPOs generally involve a lot of hype, and the market sometimes gets ahead of itself with exuberance. In practice, this often works out as a quick pop on the first day of trading followed by a substantial drop and then a steady rise.

The company plans to sell 25.7 million shares under the ticker "AONE" at a range of $8 to $9.50 each. Savvy investors should decide on a price and keep some powder dry to jump on the stock when it reaches their target, with the intent of holding the shares for the long-term. Holding battery makers has been a good move this year. The battery maker I recommended this month is up +415% for the year.

Andy Obermueller does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.