One of the most successful investing strategies is to identify long-term trends, and then find companies that will ride those waves of changes. Let's go one better and identify TWO long-term trends:
First, Western governments will continue to expand programs to reduce greenhouse gas emissions. While much of the media and political focus is on efforts to impose penalties on carbon emitters, there is an even larger push towards energy efficiency and consumption. This is happening internally via directives to every level of government to find reductions in energy use in their building and facilities, in the use of automobiles, shipping choices, supplier assessments—the full gamut of government activity.
"There is no enclosed space that cannot benefit from Smartcool's products."
It is also happening through government regulation, particularly in Europe, which seeks to force all private businesses and landlords to achieve energy reductions. And the key is—these demands are not in any way tied to necessarily saving money—just that a reduction in consumption is achieved. So the trend will continue irrespective of economic conditions or financial issues!
Second, the cost of electricity, particularly in warm climates in developed countries around the world, will continue to go up. The perfect storm of rising global temperatures, increasing population in these warm climate areas (think Texas and California versus Massachusetts), and overall consumption demand increases have resulted in huge price hikes in the last 15 years. And there is no sign that those upward pressures will lessen.
All well and good, now we need to identify an investment opportunity, one that is positioned to benefit from both of these trends.
Our favorite pick so far is a "14 year overnight success story" based right here in Canada. Smartcool Systems Inc. (SSC:TSX.V; SSCFF:OTC; R3W:FSE) has a proprietary retrofit technology that reduces energy consumption in HVAC and Heat Pump systems by 20—30%, the kind of bottom line savings in energy and money that is being demanded by every developed nation on the planet. Office buildings, school campuses, warehouses, car dealerships, apartment buildings, shopping malls—there is no enclosed space that cannot benefit from Smartcool's products. Not surprisingly, Smartcool has clients around the world including some of the biggest Fortune 500 brands.
Smartcool almost missed these two trends altogether, mainly due to coming to market prematurely. In 2004, Smartcool was formed to market the technology in North America. Electricity rates had not yet begun to skyrocket and there was very little government impetus towards reducing energy consumption. As a result, Smartcool struggled to gain market traction and growth—a terrible combination for a publicly listed tech company. Interestingly, Smartcool Asia was experiencing significantly greater success than the North American efforts. In hindsight, this was a great indicator of the future demand and potential for Smartcool's technology.
Internally SSC continued to develop the technology and add new applications, but struggled to create shareholder value. The breakthrough that puts this company back on investors' radar was technological advancement elsewhere, specifically the new generation of heat pumps being installed to replace the older HVAC heating and cooling systems. Heat pump technology, built by the world's largest manufacturers like Mitsubishi, provides both heat and cool from the same system rather than a separate boiler and air conditioning system.
Smartcool's retrofit technology performs at significantly higher levels with these systems, so much so that clients are seeing their return on the installation cost cut in half, in some cases as quickly as 12 to 18 months.
This boost has allowed the company to expand its worldwide sales network and even announce a significant acquisition that has boosted monthly revenues to historic highs.
While the stock has not moved yet, it has a significant upside, and potentially in a timely fashion. As fatigued early shareholders are replaced with new trend spotters, as quarterly financial numbers hit new highs and as new global sales operations are launched, we suggest you put SSC in your watch list.
Grant Longhurst is the president of High Performance Communications Inc. MoneyTalks.net is a High Performance Communications (HPC Inc.) production.
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1) Grant Longhurst: MoneyTalks.net is a High Performance Communications Inc. (HPC Inc.) production. HPC Inc owns shares of SSC. I determined which companies would be included in this article based on my research and understanding of the sector.
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