Friday, June 19, 2009

My Brother's Carbon Keeper

As discussed in the June 16th post, “To Market, To Market,” the investor who wants to play the cap and trade trend now has few opportunities, at least in terms of the carbon credit exchanges. There are other ways to play. To earn a carbon credit or to meet cap requirements, innovators and emitters must get verification.

Cemtrex, Inc. (CTEI: OTC/BB) hopes to clean-up (no pun intended) on the growth in carbon credit trade. Cemtrex have come out with a product line of monitoring and measuring devices, proving that capitalism and the entrepreneurial spirit is still very much alive in the U.S. The company is still small, but has accumulated a diverse group of customers from BP (BP: NYSE) to General Electric (GE: NYSE) to Citgo to Dunkin Donuts to Foster Wheeler (FWLT: Nasdaq).

Centrex has some competition from more established companies that are morphing their sales pitch to include emissions monitoring. The Shaw Group (SGR: NYSE) and Thermo Fisher Scientific, Inc. (TMO: NYSE) are well established players in the energy and environmental sectors. Centrex also gets some competition from Tekran Instruments Corporation, Horiba Instruments, Inc. and Altech Environment USA. As mid-caps SGR and TMO are plays on the greater environmental and energy sectors. Horiba and Altech are subsidiaries of large, diversified Japanese industrial companies. Tekran is a small, privately held U.S. company that focuses on the mercury emission market.

We expect all these companies will see building demand for their measuring and monitoring products. SGR and TMO are trading at 11 times and 13 times future earnings, respectively. Both stocks are trading well off 52-week highs primarily due to the economic downturn that have stalled sales.

As small as Cemtrex is the operation is profitable and in the six months ending March 2009, produced positive cash flows. The Cemtrex balance sheet is somewhat weak, with low cash, some debt and negative equity. The stock trades at less than a dollar a share on the Over-the-Counter Bulletin Board. Nonetheless, it is the only “pure play” on the monitoring and measurement opportunity presented by cap and trade.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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