There are numerous benefits of having microcap exposure to a sector you are already invested in with a larger cap stock. Recently, we interviewed management of a budding microcap wind energy company that not only has a potentially long runway for growth, but could allow investors into a sector that is predominantly made up of only larger names like General Electric (NYSE:GE) and Berkshire Hathaway (BRK.A, BRK.B).
The main benefit is that many microcap stocks are working off relatively low revenues in the initial stages of operation. This gives these companies a large runway for growth, making them the most likely candidates to experience an increase in valuation multiples as their stock prices increase. Unlike larger market cap companies with hefty revenues, microcaps do not have to abide by the laws of large numbers when it comes to market capitalization.
“In a financial context, the law of large numbers indicates that a large entity that is growing rapidly cannot maintain that growth pace forever. The biggest of the blue chips, with market values in the hundreds of billions, are frequently cited as examples of this phenomenon.How Fund Managers And Investors Are Investing And Implementing ESG
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It relates to growth rates, stated as a percentage. The law of large numbers indicates that, as a business expands, the percentage rate of growth becomes increasingly difficult to maintain.”
General Electric is one of the best pure plays in wind energy right now, as they do everything from manufacturing turbines to providing service contracts and upkeep to customers. In addition to this, they also generate their own power. General Electric is a well-known mega cap stock with a decades-long operating history and is already an established player in a wide portfolio of markets aside from alternative energy.
Berkshire Hathaway Energy, the massive diversified holdings company, best known as being run by Warren Buffett, also has a footprint in wind energy. Not only is Berkshire Hathaway Energy already one of the largest players in wind energy in the United States, it has been aggressively adding to its asset base over the last few years.
Our Wind Energy Microcap Gives You the Best of Both Worlds
With the wind energy sector estimated to increase to an astounding 18% of global energy production by 2050 (compared to about 3% currently), owning reliable microcaps in the sector may be the best way to get the most “bang for your buck” from the sector’s projected expansion.
In the U.S., wind power capacity is projected to balloon by 15,815% by 2050 (all figures below based on energy.gov statistics):
We would love to share our findings with you, as well as our recent notes from a call we had with management of a little-known microcap stock. To find out which company we are hot on the trail of that we think is taking advantage of the wind energy growth boom, click here.