The lighting industry has been changing in the United States. Due to government mandates, certain light bulbs can no longer be sold. These filament bulbs are being replaced by alternative light bulbs such as light-emitting diodes (LED). As the lighting industry continues to change, there are a few companies you can look at to capitalize on the changing industry.
Challenging the old guard
Koninklijke Philips Electronics NV (ADR) (NYSE:PHG) recently debuted a new prototype for lighting called the TLED – tube light emitting diode. This new prototype is cheaper and can produce more lumens per watt than standard light bulbs. The TLED can produce 200 lumens per watt whereas fluorescent lights can produce 100 lumens per watt.
If this prototype is brought to the market successfully, it can easily replace fluorescent lights in businesses and homes. The product will be more expensive than fluorescent bulbs, but energy costs will be lower over the life of the bulb.
Philips manufactures products for healthcare and consumer businesses, as well as lighting products. So, investing in Philips just because it has a new light bulb isn’t a great plan. Even in its lighting division, LED lights make up only 24% of total revenue.
The stock has gained around 62% in the past year. 49 analysts rate this company as a hold with a few calling Philips a buy. Hold on to this stock for now. As it releases new lighting products and gains more market share, the company may be more valuable and worthy of a buy.
A pure play on LEDs
Cree, Inc. (NASDAQ:CREE) is the market leader for innovation in LED light bulb technology. It has fewer than 8% of market penetration for lighting, though. Last year, the company introduced new products that were low cost in nature and had higher savings.
Total LED lighting sales prices have dropped due to an influx in supply. In response, Cree was able to cut its operating costs to still maintain profitability. Its gross margin is now 36.4% with net profit margin at 4.47%. With its new products that can cut energy costs by more than 20%, revenue and subsequent earnings are expected to rise nearly 37%.
Cree, Inc. (NASDAQ:CREE) also has a strong international presence. 30% of its sales come from China. It brings in 15% of its total revenue from Europe, but this may be deflated due to the region’s economic uncertainty.
Investors should pay attention to this stock and consider adding it to their portfolios.
A smaller LED manufacturer is Osram India – a company owned by Siemens. This company launched new LED bulbs for use in vehicles. They are extremely power efficient and have a long life. Like Philips, Siemens only gets a small amount of its revenue from LED technology. Osram India reported $7.09 billion in revenue in 2012, which was less than 10% of Siemens’ total gross sales.
In the United States, if all fluorescent light bulbs were replaced with LED bulbs, the energy savings would be close to $12 billion per year. This year alone, sales of LED bulbs are expected to grow 40%. So, this is a great industry to pay attention to.
Of these companies, the best fit is Cree, Inc. (NASDAQ:CREE). Philips and Siemens’ Osram India have great products and great earnings, but when investing in the LED lighting industry, it is best to go with a company that is all in.
The article This Industry Can Add Shine to Your Portfolio originally appeared on Fool.com and is written by Austin Higgins.
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