In the wind-power biz, beware giving some stocks a whirl

Times staff writer Edward Silver filed this report on a sudden wave of activity in the wind-power business -- and two stocks in the sector that may be overblown:

Wind power is on a hot streak. First, the Department of Energy last week forecast that the industry might deliver 20% of the nation’s electricity by 2030. It generates less than 1% now. Then famed oilman T. Boone Pickens ordered 667 turbines to outfit the wind empire he envisions on the Texas Panhandle. Pickens may shell out $10 billion or more before all is said and done. Over the weekend, Spain-based Iberdrola Renewables said it planned to invest $8 billion in U.S. wind operations in the next two years.

All the while, oil has continued its ominous ascent, making the renewable-energy proposition all the more compelling.

It looks like the wallflower is out on the dance floor. Even before this flurry of attention, wind was the nation’s fastest-growing form of sustainable power, with the U.S. pacing the world in adding megawatts.

However, it can be a baffling business for American investors hunting for opportunities. Denmark’s Vestas, and Gamesa of Spain, lead the pack in turbine building, but their shares have much greater liquidity on their home exchanges than in the U.S. (See this previous post.) The same goes for green utilities -- the entrepreneurial Iberdrola, for example. And the U.S. turbine champ, Pickens' partner General Electric Co., is so diversified that its thriving wind interests look small against its fossil fuel operations. (Perhaps not for long, though.)

One strategy would have investors hunt for firms in the wind-power supply chain -- the "arms dealers," so to speak -– where at least a handful of spectacular growth stories are sure to emerge.

But the following two firms may not be among them, according to analyst Stuart Bush of RBC Capital Markets.

Zoltek Cos. sells more super-sturdy carbon fiber for turbine blades than anyone else. With clients like Vestas and Gamesa, it's enviably entrenched as a supplier. Yet it hasn't made the most of its opportunity, and that's largely the fallout of internal failures. This month, Zoltek’s chief financial officer made his exit amid accounting questions that Bush still finds worrisome. The firm also has run into roadblocks trying to get its U.S. plants up to speed, holding back output while demand swells.

Some investors were buoyed by the company's recent quarterly results. Others weren't. Revenue rose 35% year over year, but that fell short of forecasts. Bush, unimpressed, rates the shares "sector perform" with a $28 target, slightly below their current level.

He also advises investors to beware American Superconductor Corp. -- which may be the message of the CEO's avid personal stock sales as well. AMSC hasn't turned a profit since its IPO in the early '90s. Despite that, it boasts a market cap well past $1 billion.

AMSC takes its name from its historical business making cables that promise efficient, high-capacity power transmission. The product line still hasn't caught on, Bush says, and chronically drains cash. Of late, AMSC has been designing electronics for wind turbines in China.

The shares have advanced almost 70% in a year, but the opportunity in AMSC's niche doesn't nearly justify the price surge, Bush says, adding: "Investors are buying without regard to valuation." He has a "sector underperform" tag on the stock, expecting it to settle at $16. That would mean giving back that 70% run-up, and a bit more.

Photo: Wind turbines near Palm Springs. David McNew/Getty Images

Comments

[Truus Shpeecks]

more than 25% of the American Superconductor shares have been shorted for months now. The latest earnings announcement showed solid growth, fast improving margins, and excellent bookings - and boosted the stock higher. The people who shorted the AMSC shares - large hedge funds, and very possibly funds unofficially affiliated with RBC, are very nervous. The growing stock price means huge losses for these investors who shorted the stock. It may be now understandable why other analysts have price targets for AMSC in the $35 range, but RBC tried their best to bring the stock price down. It begins to smell manipulation here...

[Charles R. Hoover]

Very good article. You should let your readers know that Vestas and Gamera are not difficult to buy in the US. I purchased both, but not with market orders, only with limited orders. These purchases were in March of 2006 and August of 2006, and they have dooe well since.

[Murray]

How one sided and subjective is this slanderous piece- AMSC going up every week should be objective proof that there is money flowing into shares, institutions are buying. Why state exaggerated opinions about AMSC like they are fact? If AMSC is so bad, why was it up last week when every major index was down? Why is it up so much? Everyone else is crazy, right?