Scratch that. They're already here. Hybrids. And with every automaker jumping on the bandwagon, more models are on the way.
What we all want to know is whether any Rule Breaker investment opportunities have been created by this craze. As I see it, there are three: carmakers, battery makers, and the companies that supply the metals for the batteries. Let's dive in.
You know these guys: Toyota
But hybrid technology alone won't allow any one company to separate itself from the pack -- there's simply too much competition. Every automaker is unveiling a hybrid of its own -- Ford's
Which automaker will prevail? I have no idea. But if I were putting money on it, I prefer the two sales leaders: Toyota and Honda. They're the first movers in the industry, and as every true Rule Breaker knows as mantra, being a first mover is crucial to long-term success.
The battery makers
The two largest players in this hybrid pick-and-shovel play are Sanyo
At the moment, Sanyo supplies Honda and Ford, while Matsushita supplies Toyota. Since Matsushita is more financially stable, I believe the company offers the most reward. But for those willing to assume more risk, there is turnaround value to be found in Sanyo.
The wild card in all this is EnergyConversion Devices
Today, Energy Conversion Devices sees royalties from some of the Sanyo battery sales, but none of the Toyota sales. This is because the Toyota Prius is made entirely in Japan and then shipped to the United States, making the company's patent inapplicable. Energy Conversion Devices also has a joint venture, Cobasys, which manufactures batteries and should benefit from increased hybrid sales. ECD expects to be profitable in 2006 and is worth looking into if it progresses toward that goal in the next few quarters.
The other potential investment opportunities are in the companies that produce the metals that make NiMH batteries. Given that the batteries are nickel metal hydride, you might assume nickel is the name of the game. It is to some extent, but cobalt, manganese, and aluminum are also contributors.
Like most of the other companies mentioned, these metal producers are large companies with well-defined businesses already in place. The largest, Inco
A smaller company worth considering is OM Group; check out this article by Stephen Simpson for some more Foolish thoughts.
Foolish final words
That's a short but well-defined list of companies that may see substantial benefits as hybrid sales increase. There are also semiconductor and electrical equipment companies that could also benefit, but that's a ball of research for another day.
As a general rule, I do not recommend "theme" investing. So don't run out and build a portfolio of companies based simply on the premise of increasing hybrid sales. It could leave you underdiversified, particularly if hybrids fizzle out.
Instead, use this list of companies as a starting point for your research. As the sales trend of hybrid cars continues, you may just find a Rule Breaking investment that will flourish.
There are a ton of Rule Breaking investment opportunities appearing on the market today. From hybrid cars to nanotechnology to cancer vaccines to channel management, companies large and small are revolutionizing the way we live. For some great ultimate growth ideas, kick the tires on a 30-day free trial to Fool co-founder David Gardner's Motley Fool Rule Breakers investment newsletter service. You'll enjoy access to all of the back issues and previous picks and to the Rule Breakers discussion boards, where the RB team posts regularly and where you'll find hordes of like-minded investors sharing wisdom, ideas, and analysis. Click here to learn more.