I haven’t written about CREE in a while. In the year end tax selling binge, the stock briefly dropped below my SSL of $23, but I chose not to sell my 2,000 shares. Based based on where it is today, I hope you chose to hold on as well.
Just after the year ended, CREE made a very surprising and fairly robust rebound, heading from just under $22 to over $28 in six trading days. This, against of backdrop of every tech stock being taken out to the woodshed and beaten to death. What the heck is going on here?
The answer: sector rotation, and CREE is now perceived to be in the right sector.
As many of you know who have read my content on this company, I believe CREE has truly disruptive technology. They are the technology behind the new wave of LED light bulbs- destined to replace the incandescent light bulb we have all been using for over 100 years.
LED lightbulbs last 4 to 6 times longer than incandescents, and use less than 1/2 the power. The problem: cost- a regular LED lightbulb runs about $25 today. Despite being worth it, consumers have not shown a willingness to invest this much up front.
Nevertheless, LED lighting is coming. The transition away from incandescent is being mandated over the next five years by several European countries, and many feel the US is not far behind.
In fact, I was listening to Barrack Obama speak the other night, and he referenced sacrifices we would have to make to get energy consumption under control- he specifically stated we would all have to invest to “change our lightbulbs”. BTW- this is not a political commentary, so don’t bother commenting that you luv or hate him. Like it or not, it was on national TV in primetime.
CREE has patented technology for the chips that power LED bulbs. The price is expected to come down over the next two years quite rapidly, and CREE will get fees and royalties for every chip in every LED bulb.
Here’s the rub. For most of the second half of ’07, CREE was viewed as a “chip” stock, and semi conductor issues have been getting pounded.
In fact, the SOX index (semi conductor) is now trading down to levels unseen since September of 2004- that’s nearly 4 years of appreciation down the toilet.
Here’s what’s happened: the view of CREE has changed since the first of the year. As we turned the corner into 2008, the media began interviewing analysts and fund managers about their view of the right sectors for 2008. A common theme: GREEN- anything that saves both the environment and energy is considered green, and nearly all of them were touting CREE as a company embroiled in the green movement. With the democrats looking strong for late in ’08, green is even more “in vogue”.
To sum it up, the perception of CREE has changed from a chip stock to a green stock since the first of the year, and the proof is in the chart. Check it out:
Here’s a chart overlaying CREE and the SOX Index. I put CREE in green (yes, it’s symbolic). Note they traded pretty much in tandem in December, and look how radically they have diverged in January.
CREE- now widely accepted as a GREEN stock, is a great one to be in for 2008. It has been immune to the recent big blow off in the market because it is now a GREEN stock, and as such will trade with a much fuller market valuation.
I don’t know if it’s a buy for a trade right now, but it should definitely be accumulated on dips for a trade, and anytime it’s below $30 for long term investors.
Comments and questions are welcome.