Just a few weeks ago, I was looking at a group of stocks that — on the surface at least — looked like they had solid potential upside, perhaps as much as 100%. 

Well, one of those stocks stuck in my craw. 

#-ad_banner-#I decided to look more deeply at the prospects for Maxwell Technologies (Nasdaq: MXWL), and after further review, I now think a 100% potential gain may just be the start. I rarely go out on a limb and predict 200% or even 300% upside for a stock, but that’s what Maxwell looks like to me. 

Here’s why…

Lots of juice — right when you need it

To help understand why Maxwell’s technology position is so compelling, a quick course in electronics is helpful. A capacitor is a device used to regulate the flow of energy, whether between various forms of current (alternate or direct), in a power source, or to stabilize the flow of voltage. Capacitors are also used to store energy, as they can quickly release lots of juice when needed (unlike a batteries, which can store a lot more energy but releases that energy more slowly). 

Maxwell makes “ultracapacitors,” which can pack in much more energy than traditional capacitors, opening up the door to many new applications for a seemingly old technology (whose roots go back to 1754). These devices, which can be charged and discharged in hundreds of thousands of cycles, can be used in areas where traditional batteries can’t do the job. (Maxwell also makes traditional capacitors as well as other micro-electronics, though those products now account for just 35%-40% of sales.)

Although ultracapacitors were invented by GE (NYSE: GE) nearly a half century ago, the company struggled to make a real dent in the electronics/energy storage market. As recently as 2005, the entire global market for ultracapacitors was estimated to be just $250 million. Back then, Maxwell controlled just 5% of the market, equating to about $12 million in ultracapacitor sales (or roughly 25% of the company’s total sales base). Since then, ultracapacitor prices have been steadily declining, opening up opportunities for many new price-sensitive applications.

Consider the modern automobile. Many new cars come with a “stop-start” feature that cuts the engine at a red light to save gas. You would quickly wear out a battery if it were used so frequently to provide energy to a starter quickly. Instead, many auto engineers are using ultracapacitors to do the job.

Other examples of ultracapacitor use:

• The newest generation of light rail systems uses ultracapacitors to provide the quick burst of energy required to get trains moving from a standstill. 

• Utilities like to install ultracapacitors at wind-farm installations because they operate turbines even when the power goes out.

• In Japan, the country’s largest trash hauler has begun using Maxwell’s ultracapacitors in its garbage trucks, which makes them operate a lot more quietly as they roam the streets in the pre-dawn hours.

• In China, more than 500 hybrid buses now use Maxwell’s ultracapacitors.

By the fourth quarter of 2011, Maxwell’s ultracapacitor sales had grown for seven straight quarters. Yet in the first quarter of 2012, the company hit a speed bump. Sales of $39.2 million trailed forecasts by roughly $1 million, and the year-over-year sales growth rate slowed to just 11%, the lowest level in five years. Also, management noted that second-quarter sales would also be about $40 million (representing just 8% year-over-year growth). The reason: European buyers decided to postpone orders until the Greek crisis had abated.
 

Management noted that sales would still rebound to the upper $40 million range in the third quarter and exceed $50 million by the fourth quarter. But some investors wondered if it might take longer for growth to return, and quite suddenly, a rising growth stock was no longer in vogue. 

 

At this point, the stock price clearly reflects expectations that business will remain muted for the rest of 2012. Yet management insists that customers have simply been deferring orders for a few quarters and not canceling them. They note that the sales pipeline of new business wins remains near record levels.

And they’re backing that bullishness up with their own funds. Since late April, insiders have been buying stock at ever-lower levels. In the subsequent six weeks, four insiders snapped up more than $500,000 (on a collective basis).