Investing in LED Lighting Stocks

LEDs or Light Emitting Diodes are a lighting technology that is expected to replace all incandescent bulbs soon creating a complete disruption in the lighting industry. Some analysts have made forecasts of spectacular growth for LED lighting such as Credit Suisse who expects the market to double from 2014 to the end of 2016. As prices fall, adoption continues to increase and there is no reason why LEDs should not live up to their promise. Consequently, this growth story has fueled a great deal of interest from investors who are thinking about which companies stand to benefit.

We were able to compile a comprehensive list of the market leaders in LED lighting by combining several lists published by Research and Markets and Market Research Reports which highlighted the key players in the Global LED market. Out of the 13 companies in our list, 5 are conglomerates that could possibly dominate the LED space in the coming years but don’t give investors any pure play exposure:

Non-Pure Plays

  • Philips – As of Q1-2015, Philips stated that LED sales grew by 24% compared to the same period in the prior year, and constituted 39% of sales in the lighting division. Even though LED sales come in at $735 million, that’s just 12.6% of Philips’ total revenue making it a very poor candidate to invest in if you are only looking for exposure to LEDs.
  • Samsung – Hearing the name Samsung doesn’t really make you think of lighting but rather smartphones at the moment. While Samsung identified LED lighting as a high growth area to focus on in 2010, 5 years later they are throwing in the towel. Analysts cited growing competition from Chinese manufacturers.
  • Toshiba – In 2013 Toshiba acquired GreenStar Products, a manufacturer of energy-efficient LED luminaires for roadway, area and canopy lighting applications. Toshiba is involved in everything from Power and Social Infrastructure to Healthcare and seems to be targeting a specific application of LED lighting to perhaps complement existing offerings.
  • GE Lighting Solutions – For the first quarter of 2015, GE’s “Appliances and Lighting” segment took in $1,94 billion dollars in sales. Even though this impressive number is almost 3X that of their competitor Philips, this division represents just 6% of GE’s total revenues for Q1 2015. For someone looking to invest only in the future of LEDs, this would not be a suitable investment.
  • Mitsubishi Chemical – Verbatim is a fully owned subsidiary of Mitsubishi Chemical and offers a wide range of LED lighting solutions. Their original commitment to this subsidiary was around $91.5 million. Mitsubishi Chemical has six different diverse business segments, the majority of which have little to do with lighting.

While investors love the diversification that conglomerates provide, this very diversification is what keeps these companies from being attractive candidates for LED investors. Continuing through our list of LED companies, we find that 3 are privately held and not accessible to retail investors.

Private

This leaves us with 5 LED lighting companies that are publicly traded and accessible to retail investors:

Publicly Traded

  • Cree (NASDAQ:CREE)
    Countries TradedU.S.A – Market Cap$3.28 billion USD
     1YR Return: -36% – 5YR Return: -53%
  • Epistar (TPE:2448)
    Countries Traded: Taiwan Market Cap: $1.76 billion USD
    1YR Return: -26% 5YR Return: -26%
  • Osram (ETR:OSR)
    Countries TradedMultiple – Market Cap$5.62 billion USD
    1YR Return: +33% – 5YR Return: +81%
  • Lite-On Technology (TPE:2301)
    Countries TradedTaiwan – Market Cap$2.95 billion USD
    1YR Return: -20% – 5YR Return: +7%
  • Everlight Electronics (TPE:2393)
    Countries TradedTaiwan – Market Cap$981 million USD
    1YR Return: -1% – 5YR Return: -20%

Conclusion

As you can see by the above returns (with the exception of Osram), LEDs seem to be an out of favor growth story at the moment with investors becoming skittish about falling prices. However, it’s these very same falling prices that will help assure this high adoption growth rate.

One way to invest in this situation would be to buy the two biggest players by market cap; Osram (OSR) and Cree (CREE). You would need to buy Osram in euros so then you would benefit from some currency diversification.

Pure-play disruptive tech stocks are not only hard to find, but investing in them is risky business. That's why we created “The Nanalyze Disruptive Tech Portfolio Report,” which lists 20 disruptive tech stocks we love so much we’ve invested in them ourselves. Find out which tech stocks we love, like, and avoid in this special report, now available for all Nanalyze Premium annual subscribers.

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