The Stock to Ride to $5 a Gallon

05/03/2011 12:43 pm EST

Focus: STOCKS

Battery maker Polypore will be a major beneficiary as costly fuel spurs demand for electric vehicles, writes Brendan Coffey, editor of Cabot Green Investor.

Polypore (PPO) makes high-tech filters used inside lithium-ion batteries (and lead-acid, of which it is the market leader), in the filtration and separation processes of manufacturing energy-storage products, as well as in pharmaceutical production and desalination.

Its lithium-ion battery products are currently used in Apple's (AAPL) wildly successful iPad tablet computer, and the company is also seeing a surge in automaker interest as that industry gears up to roll out new hybrids and electric vehicles in coming years.

Although the share price has more than tripled over the last year, I still think the stock has excellent upside.

Apple and iPad have been behind much of the past year's price growth, helping Polypore double sales since 2005 through last year. It's safe to say the iPad is built into the current share price, but the hybrid and electric vehicle (EV) segment is what will provide the truly exceptional growth I see ahead.

By 2015, one estimate says that automakers will roll out or have serious designs for more than 80 new models of hybrid and electric vehicles. A mere 5% of automotive builds going to EVs would more than double demand for the type of high tech lithium-ion membranes that Polypore produces. The low estimate of EV world demand has market penetration of 4% by 2015; the high estimate has nearly 10%.

Given rising automaker interest, Polypore is expanding its North Carolina facility this year, adding another plant in that state, and expanding its Korean facility. By 2012, the company will have 200% of the capacity it had during the latter half of 2010.

But will demand be there to support all the EV investment being made by Polypore and automakers? As we enter summer, I foresee even greater pressure on gasoline prices, which will heighten consumer interest.

At the start of the year, I dismissed expectations of $5 gas as over-exuberant. With Libyan supply now largely gone from the market, $5 a gallon is much more likely, especially since the turmoil in the Middle East has essentially removed the industry's room for error.

If $5 a gallon gas happens, even I'll feel my new car isn't the bargain I thought it was when I hand over $93 to fill that 18.5 gallon tank.

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