Fool's Eye View

[ June 22, 2000 ]

Visionary Investing Via Milk Floats

By David Kuo (TMFDragon)

Carburton Street -- I guess every investor who puts his money into shares believes that he is some kind of visionary. Otherwise he wouldn't have bothered buying that selection of stocks in the first place. I would like to think that most investors put their money into companies because they believe in its product or service. I trust that they invest in the hope that the demand for the company's product will lead, over time, to a higher share price. Alas no. I fear that most investors are far too myopic and the vision hardly ever extends beyond the next set of interim results. So, what exactly is visionary investing then?

Every once in a while, a piece of news hits your sensors. The news may come in a form that is so innocuous that you could easily miss it. You might come across it when you accidentally eavesdrop a conversation between two boffins on the train. You might catch a glimpse of it in a newspaper headline. You may even hear it on the evening news when you're dozing off in your easy chair (after a hard night in the local). The news may seem mundane and unimportant at the time but to the visionary investor it sets off a train of thought that is almost unstoppable.

Take Off!

The other day, June 17th to be precise, Don Wales, the grandson of the legendary "speed record breaker" Donald Campbell, broke the land speed record in an electric car. I made a beeline for the PC, logged on and surfed the net for more information.

Don Wales in his Electric Bluebird achieved a recording breaking speed of 128 mph. I think that would put many a fuel-injected petrol guzzler on our roads to shame. It must be said that his vehicle was an "all-singing", "all-dancing", "steel tubular-framed", "aluminium-bodied" purpose-built monster of a car but it still probably spells the beginning of the end for our beloved turbo chargers.

The visionary investor will be quick off the mark to disassemble his electric car; attempting to unbundle the various parts that go into its construction. And so, at the same time, looking for investment opportunities therein. To my great disappointment, the power source for his car was a 600-volt lead acid battery and not fuel cells as I had hoped. Nevertheless, Don Wales has demonstrated that it is possible to construct a record-breaker by re-examining and re-designing the motor.

The Fastest Milkman in the West

Speed has always been a great selling point when buying the car of your dream. For most people, electric cars still summon up images of the late Benny Hill and his portrayal of Ernie the Milkman on his milk float, holding up the traffic while he delivers your early morning pinta. But Don Wales has now put all that to rest, I hope.

Electric cars are nothing new. This is because the motor industry is well aware of international Governments' concerns about environmental pollution, not to mention the backlash over rising fuel prices. The Japanese car manufacturers have been quick off the mark in this area. Both Toyota and Honda already have electric cars in production. Toyota's Prius made its debut in 1997 while Honda's Insight was introduced two years later in 1999. Meanwhile developments are going on over at Daimler Chrysler (NYSE: DAJ).

Daimler recently restated its commitment to electric cars and in particular to fuel cell powered vehicles. Its commitment extends into its partnership with Ballard Power Systems (NYSE: BLDP) to develop fuel cells for the future. Ballard was recently discussed over on the Rule Breaker board in the US.

Visionary investors with greater vision than me have already jumped on the Ballard bandwagon and shares in Ballard have gone through the roof. You've got to take your hats off to these investors. Pushing the price up from $25 to nearly $150 in the space of six months. If only Don had broken his land speed record a few months sooner.

Fortunately, all is not lost. The intrepid visionary investor delves deep into the world of the fuel cell only to find that there is more than one way to invest in fuel cells. Fuel cells come in all shapes and sizes with a host of acronyms to match. Deciding which fuel cell will be the industry standard, if there is such a thing, could bring untold wealth.

Fuel Cell Powered Growth

All fuel cells work on the same principle. There are two electrodes separated by an electrolyte. Over at the anode, a catalyst splits the hydrogen fuel into protons and electrons. The protons travel across the electrolyte to the cathode and the electrons flow through the external circuit as current. Back over at the cathode, the oxygen combines with the protons to produce water. Hey Presto! The fuel cell in one easy lesson. But where's the money in that I hear you ask?

The money is in the catalyst. The most commonly use catalyst is platinum although nickel has also been used. Platinum in the UK is supplied by Johnson Matthey (LSE: JMAT). The group's shares have already benefited from the demand for platinum in catalytic converters in cars.

Johnson Matthey is commonly referred to today as an "old economy" stock. I just hate that term because it sounds so terminal. The great thing however, about these "old economy" companies is that they make real money. They have real earnings that can be used to compute realistic P/E ratios.

In Johnson Matthey's case the P/E ratio currently stands at 20. For the visionary investor, the question is not whether the P/E looks expensive or cheap but whether fuel cell vehicles will dominate our roads. If you believe they will then Johnson Matthey is well poised to reap the rewards.