Tuesday, January 17, 2023
If there was ever evidence of the need to have a generator on standby, look no further than the Christmas storms that blanketed much of the nation.
The combination of high winds, snow, and ice caused the cancellation of thousands of flights. But at least those folks (while frustrated and trapped at an airport) had lights and heat.
Nearly 1.5 million others, meanwhile, weren't as fortunate. Storms knocked down power lines and knocked out electricity – in some cases, for days.
I'm a big advocate for having a generator on standby that can power at least some of your home. And I'm certainly not the only one.
You see, the market for reserve power for homes and businesses is worth $17.5 billion. And within this market is a company who has earned double the returns of the stock market over the past five years.
Now it's primed for even more growth, and we don't want to miss out.
Because I live in California, you might think I don't have to worry about inclement weather. It's sunny skies and breezy temperatures all the time, right?
Not so fast...
In the Golden State, we face electricity shutdowns on days when high winds knock down power lines and cause infernos. Consider the Santa Rosa Tubbs Fire that struck in 2017, the most destructive wildfire in California history at the time. More than 36,000 acres were burned before the fire could be contained.
Along with the blaze, strong winds knocked down 10 power lines, causing transformers to explode. Additionally, 41-mile-per-hour winds contributed greatly to the amount of damage that occurred before first responders could get the situation under control.
Bay Area utility company Pacific Gas & Electric (PG&E) and its archaic power lines were blamed for much of the disaster. And the company filed for bankruptcy after other fires were caused by similar infrastructure issues.
These vulnerabilities are why one company is focusing more on states that are subject to hurricanes, heavy snow/ice, and other extreme weather-related events...
It's a company called Generac (NYSE: GNRC).
Generac has been around for 64 years and is the top-selling brand in home backup generators. This company dominates the market – you can find its products in 75% of homes that own generators...
And with the rise of remote work increasing the need for people to have a reliable power source, this company's domination is sure to continue.
Consider that only 6% of U.S. homes have invested in backup power sources. If Generac were to bump that number up just one percentage point, it would add $2.5 billion to its addressable market.
This company already boasts strong financial performance metrics. Generac has increased sales and earnings over the past decade by 340% and 664%, respectively.
And while it makes more than half its revenues selling residential products like standbys and portables, it also has products in the commercial and industrial sectors.
Generac's commercial and industrial products include business standbys, industrial and mobile generators, light towers, heaters, and pumps. It also plays a big role in providing solutions for telecommunication and data centers.
With the continued rollout of 5G technology, there is a need for significant improvements in this area. 5G needs three times the number of base stations to support power consumption.
The standards for telecommunications are high, too. Backup power in this field runs on "the Five 9s" – flowing electricity to relay stations, servers, and antennas 99.999% of the time. Data centers need reliable power, too. A sudden loss can bring an entire center's operation down.
In addition to these fields, Generac has a new revenue stream in the form of grid services.
Its open software platform, Concerto, helps grid customers get the most of their operations. This software enables an efficient balance of supply and demand in real time to make energy more accessible.
Generac has also moved into the growing market for solar batteries. Its PWRcell Solar + Battery storage system can keep an entire home running. With demand for solar power and the need for backup, this offers years of growth opportunity.
Admittedly, Generac's stock has fallen out of favor following a report that third-quarter growth fell behind previous results.
But a lower stock price is a good thing. It means we can buy in at a bigger discount. Make no mistake: Playing the long game here offers plenty of upside.
Over the past five years, Generac has roughly doubled the returns of the S&P 500 Index. And over the past three years, per-share profits have grown by an average of 32%, meaning they could double again in just over two years.
In the next five years, this company could double its earnings twice!
Bottom line: This company can power your home and has the potential to power your portfolio, too.
In our "Trade of the Day," I'll show you the best approach to investing in Generac. Check it out!
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Cheers and Good Investing,
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Trend Trader Daily