How To Profit From General Electric's Next Wonder Material

NEW YORK (TheStreet) -- Much has been written about 3D printing and graphene. In the case of 3D printing we have witnessed stocks involved with that technology soar in 2013.  In the case of the wonder material graphene, there are not many stocks that are publicly traded that have exposure to this material. There is one and that will be the focus of a future article. Imagine if you were to be ahead of the curve on 3D printing before the masses found out? Traders should constantly be searching for new technologies and trends that are about to become mainstream before they become stock market darlings. 

Today I want to talk to you about the next wonder material. I am not talking about graphene right now,  I am talking about ceramic matrix composites (CMC) and carbon fiber composites (CFC).

General Electric (GE) has $144 billion in orders for its next generation jet engines.  

"The engines are standing on the shoulders of groundbreaking technologies we've been developing over the last decade," says David Joyce, CEO of GE Aviation. "Our strategy is clearly paying off."

All three engines have components made from advanced materials like aviation-grade carbon fiber composites. They allowed engineers to make the engines bigger, lighter, more fuel efficient and also quieter.

The LEAP and the GE9X, with 11 feet (3.35 meters) in fan diameter the world's largest jet engine, will also have 3D printed parts and components made from a special ceramic material called ceramic matrix composites.

The CMCs are ceramics for superheroes. They are two thirds lighter than metals and tough enough to operate at temperatures 20% higher than their super alloy counterparts, at levels where most metals grow soft.

The materials and new designs will deliver big savings for airlines. The GEnx is 15% more fuel efficient than comparable GE engines and the LEAP could save airlines up to $1.6 million per airplane in fuel costs. They also generate fewer carbon and nitrogen emissions.

How much of this is priced in to GE stock today? As of today, the stock is trading at $26.69 for a price-to-earnings ratio of 15 based on next year's EPS estimate of $1.70. The highest analyst target is $32. In the right market conditions, perhaps GE may see more appreciation as the new jet engine receives more mainstream coverage. 

I have found another Nasdaq company named Ikonics (IKNX) that is developing what they call a "patent-pending breakthrough technology that makes quick work of perforating and cutting composites,  ranging from carbon fiber to ceramin matrix composites to Kelvar, and does it without de-lamination, burnishing, or need for de-burring".

Advanced materials, such as carbon fiber and Kevlar are notoriously difficult to machine using conventional machining and drilling methods. Tool wear can be excessive, time-consuming and costly. Ikonics makes even the most difficult composite machining efficient, cost-effective and faster than competing methods.

The more I researched it the more I realized that the IKNX technology is not just an unknown company with a technology they hope to sell to the majors,  they actually have deals already in development with major aerospace companies.  

In April 2013, Ikonics announced that it is working with Lockheed Martin (LMT), a global aerospace company, to develop a new method of machining ceramic matrix composite materials using Ikonics' proprietary particle beam technology.

"CMC is notoriously difficult to machine because of its hardness and non-uniformity. Our technology eliminates edge damage to the material caused by remelt with lasers or delamination with waterjet or mechanical machining methods," said Karl Shaw, Ikonics' Chief Technology Officer. 

In their latest press release, Ikonics CEO Bill Ulland stated:

"Our Micro-Machining business, which is comprised of both composite and electronic wafer machining, is now making good headway -- especially in the aerospace industry. For the second quarter of 2014, we have solid production orders as a second tier supplier to Airbus and Bombardier. The new Airbus and Bombardier aircraft we supply are currently being manufactured and are anticipated to begin commercial service in 2015. We expect substantial recurring business as this production ramps up. We also anticipate entering into contracts with additional aerospace companies in the third and fourth quarters."

Ikonics technology appears to be gaining widespread acceptance within the aerospace industry, which is one of the first to embrace these new materials. Additionally, Ikonics has another patented technology that they describe as revolutionary, DIgital texturing or DTX. In the latest 10-K they stated,

"The Company is also continuing to make progress on its DTX business initiatives.  In addition to its growing inkjet technology business, the Company offers a range of products for creating texture surfaces and has introduced a fluid for use in prototyping. The Company is currently working with its DTX customers on training, production optimization, and product improvements.  The Company has been awarded European, Japanese and United States patents on its DTX technologies.  The Company has modified its DTX technology to enter the market for prototyping and 3D printing."

So IKNX seems heavily involved in one of the next wonder material as well as a possible unique new entrant in the 3D printing world. Already profitable, the CEO recently said he believes the company is well positioned for future growth in sales and profits. Ikonics is also expanding their equipment and facility to meet the coming growth phase but stated the cash on hand is adequate to accomplish this expansion.  

3D printing company The ExOne Company (XONE) is not profitable and trades at 8 times sales.  Voxeljet AG (VJET) is not profitable and trades at 17 times sales. Ikonics is profitable ($34 TTM EPS) and trades at only 2.7 times sales

GE and IKNX look like two companies to watch on the new composites wonder material. 

At the time of publication the author is long IKNX.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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