Tomorrow: Don’t sell your oil stocks. But today . . .
DON’T SELL YOUR BOREALIS
People keep asking me what to do about Borealis and I keep coming back to this: The plane moved.
I grant you, it would have been more dramatic if it had levitated.
Or dematerialized and then rematerialized on the White House lawn.
But just pushing the plane around the runway . . . well, here’s what I think it’s like. Did you ever see The Ten Commandments (amazingly, omitted from Vanity Fair‘s just-published top 50 list)? Moses has Joseph cast down his staff and it turns into a snake. Pharaoh is not impressed. Moses pours a little wine into the Nile and the river turns red. Pharaoh figures it’s a fluke. But even Moses’ own people stay impressed only so long. It rains toads . . . the first-born of Egypt are stricken yet their own first-born passed over . . . the Red Sea parts . . . (!!!!!) – but pretty soon the people of Israel . . . well, when Moses is too long on the mountain getting those tablets, they forget all this and fall prey to the temptations of Edward G. Robinson.
My point: people lose faith real fast. And therein may lay an opportunity for those able to take the longer view.
This is not to say we will ultimately win with Borealis. It’s risky! Things may not pan out.
But however you believe the Red Sea parted, all indications are that Air Canada’s jumbo jet moved because it was driven by an 11 1/2-by-16 inch Chorus motor. And so here’s the pattern I expect:
Something good will happen, like that August 1 Boeing press release, and the stock will jump. Then days, weeks or months will pass with no news and people will begin to lose faith. Some who bought at $3 will sell at least enough to get their money back or, having quintupled their bet, may sell it all. That selling will cause the stock to slip back and, seeing the drop, others will get nervous, not wanting to lose the rest of their nice gain, if they bought at $3, or fearful they will lose even more, if they bought at $21. So more selling.
But then there will be some other news, and up the stock will go again, perhaps to an even higher level.
Not forever, of course. And certainly not guaranteed.
But think about it. If you had to make a list of all the bad news that could pop up over the next few months, you’d have to be pretty creative. Revenues dip compared with last year? Not possible – the company had no revenues last year. Profits disappoint? Not possible – the company has no profits and I doubt anyone expects any soon. Company delisted? It’s not listed now. Banks call their debt? Company has no debt. Company runs out of cash? Well, that’s certainly a risk – but if investors have been willing to front this nutty company for years before any dramatic proof its technology could work, why would funding suddenly dry up now?
I suppose it’s possible Boeing could announce that the whole thing was a fraud somehow – mass hypnosis. Or that technical issues could not be resolved – the motor was just too sensitive to perform reliably after repeated hard landings, or the FAA had irresolvable safety concerns, or whatever.
But I would imagine bad news like that would be a year or more off, not weeks or months. And even if it came, why would that rule out the motor’s use with fork lifts, cranes, elevators, locomotives, golf carts, or even perhaps, someday, cars? And why would FAA safety concerns invalidate all the other patented technology the company has come up with – or, for that matter, the valuable iron ore deposit it claims to own?
I am absolutely not saying this company or stock is a sure winner. Maybe GE has a ten times better motor in development that it’s about to unveil. Maybe all the company’s other technologies will be leapfrogged as well or prove impossible to commercialize.
But what a good lottery ticket (in my view) it remains at these prices. Because what if you had to make a list of all the good news that could pop up over the next few months? To my mind, that would be an easier list to make. The headlines could range from the superficial to the technological to the commercial to the financial.
- Superficial: The story makes it into the pages of Business Week or the science pages of the New York Timesand then gets picked up on NBC Nightly News. (“Travelers and environmentalists alike are intrigued by the possibilities of what some are calling The Little Motor That Could. It’s only about the size of a watermelon, but in tests on a secret desert airstrip, it managed to tug a jumbo jet around the tarmac like a golf cart. That could one day mean fewer airport delays, say airline experts, and savings on fuel, noise, and fumes. NBC’s Anne Thompson reports . . .”)
(It made NPR last week.)
- Technological: More patents, further progress on the company’s several technologies.
- Commercial:Boeing announces that progress has been made on design for an integrated WheelTug system – a testing protocol has been negotiated with the FAA. Or Rolls Royce or Semikron, with whom the company seems to have relationships based on previous press releases, announce some kind of deal. Or the world’s leading golf cart maker (whoever that is) announces that it is going to offer a cart powered by “the same motor that drives a jumbo jet.”
(And speaking of golf, note that the Callaway Golf company – which makes golf clubs and lost money last year – has a market valuation more than 10 times that of Borealis. If Borealis, which we hope will one day be licensing all kinds of amazing things, ever sported a market cap one half that of Callaway Golf, you would have a fivefold gain on the stock from here. If it ever sported a market cap one third that of Wrigley Gum, you would have a fiftyfold gain. I am absolutely and definitely not saying this will ever happen; just trying to illustrate why I believe we hold an attractive lottery ticket.)
- Financial: What if Honda announced it will buy 10% of the company for $100 million? Honda had more than $7 billion in cash on its most recent balance sheet, so this would be trivial – but might give them a technological leg up with Toyota. Or what if China made this deal? China had more than $240 billion sitting in US Treasury securities as of May and their trade surplus for June alone was more than $9 billion.
Of course, I’d prefer to see an American partner. But Ford and GM never seem to be out front. Maybe someone like Intel or Microsoft? MSFT has so much more cash than it knows how to profitably invest that it paid out a special $30 billion dividend a few months ago. Or Boeing? Or an oil company that sees how the Power Chips technology just might, conceivably, keep it in the energy business after its oil reserves run out?
Or let’s let our imaginations run really wild: What if the company someday went through the regulatory hurdles to get listed on NASDAQ or some reputable stock exchange?
At the end of the day, this saga might drag on forever with nothing ever coming of it. Remember Cool Chips? It was almost four years ago that Boeing issued its positive review, and still no hint of a commercial product on the horizon.
And didn’t it take more than 20 years for television, invented in 1926, to make anybody a dime?
So don’t put any money into this stock that you can’t truly afford to lose. Just as with my brilliant Google puts idea, you truly might. But I bought more at $16.
Quote of the Day
Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works.~John Stuart Mill, 1867 (Like shopping centers in the middle of the desert. Or millions of pages of legal documents.)
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