A Bright Future for American Superconductor

One of the high flying renewable sectors in 2008 is wind energy. When oil was trading at $147, investors suddenly became overly optimistic, which I call "investment euphoria". For example, A-Power Energy (APWR) was once trading at $32, yet the company has not produced a single wind turbine; Broadwind Energy (BWEN.OB) was trading at $29; Trinity Industries' (TRN) 52 week high was a lofty $41. Most of these companies are trading at single digit levels now. Can we say it's time to invest in wind energy? Not really. It depends on which companies you choose, and picking a value company is the key here.

A-Power Energy is doing business in China, and recently the company signed a 50 turbine contract with China's national automation control system. The contract didn't excite investors at all, and instead investors continue to question the company's financial health since it fired its CFO back in October. With oil prices tumbling, China may very likely turn to traditional energy sources, such as oil and coal, since wind and solar energy sources are still too expensive in China. In the recent stimulus package, China didn't mention any investment in renewable energy, and this casts doubt on companies like A-Power energy's future. Currently the stock is trading at $5.10, and will likely slip back below $4.

Broadwind Energy is also in a similar situation. The company reported loss of 2 cents in Q2, and this is the 3rd consecutive loss reported. The stock is trading at $8.

Trinity Industries, Inc., through its subsidiaries, provides various products and services for the industrial, energy, transportation, and construction sectors primarily in the United States. Its Rail group manufactures and sells railcars and component parts, such as auto carrier cars, box cars, gondola cars, hopper cars, intermodal cars, specialty cars, and tank cars. Wind tower products are a big portion of the sales. The company reported 3rd quarter 2008 earnings of USD 1.14 per share on 10/29/08. This beat the consensus of USD 0.91 by USD 0.229.

There is one high tech player in the wind energy sector, and it is American Superconductor (AMSC). American Superconductor Corporation provides an array of solutions based on two proprietary technologies: programmable power electronic converters and high temperature superconductor (HTS) wires. Its products, services, and system-level solutions enable generation, delivery, and use of electric power. The company's AMSC Power Systems segment produces products to increase electrical grid capacity and reliability, supplies electrical systems used in wind turbines, and sells power electronic products that regulate wind farm voltage to enable their interconnection to the power grid. In other words, where there is wind turbine, there are products of AMSC.

The company plays a big role in T. Boone Pickens's $2B wind farm project in Texas. With Obama's promise to upgrade America's power grid, AMSC's superconductor power grip solution has a bright future. In the recent conference, the company guided towards profitability in fiscal 4th quarter. The company also signed a 500MW contract with Sinovel, which will be going online in January 2009. In wind energy sector AMSC may well become a leader, just like First Solar (FSLR) has in the solar sector.

Stock position: Long FSLR.

Comments

[JSbalaban:]

Kelvin's comments regarding APWR no doubt represented complete lack of impulse control reflecting his investment conflict of interest in solar. The reason APWR was not mentioned in the stimulus package is because they're doing so well that they don't need help-- they already have government support in place for their industry and have had for some time. As for the likelihood of them slipping back below $4, that's likely Kelvin's wish so that he can buy in at a price he wants to pay. In my correspondence with Ian Shanno, APWR's IR Director, APWR is doing quite well.

JBB

2008 Nov 14 07:24 AM

[ZAIDANE:]

WHY YOU ARE NOT long on AMSC

2008 Nov 14 08:31 AM

[ZAIDANE:]

Why you are not long AMSC? PUT YOUR MONEY WHERE YOUR MOUTH IS

2008 Nov 14 08:32 AM

[chi:]

His remarks on AMSC convey all the authority of a grade school book report. What evidence is there that AMSC will play any role, let alone a "big" one, in T. Boones Texas plans, which, by the way, are on hold.

2008 Nov 14 08:43 AM

[john s. gordon:]

long-distance superconducting DC xmission at LN2 temperatures is the wave of the future, especially when the wind resource is located far away from load centers.
> jack

2008 Nov 14 08:43 AM

[Buffett Jr:]

I am long APWR but am not a cheerleader for the stock and admit it has it's flaws however you are way off base and show a lack of Due diligence. They never claimed to have wind turbines up and running by November. They claimed to be receiving the parts from their partners in Europe Furhlander and Norwind in November. 1st Q 2009 is the target for rolling out the turbines. As far as the CFO yes that was a black market but it had nothing to do with finances being shady. He violated NASDAQ regulations by working for two companies at once.

I don't know what you expected from the stimulus PR do you want China to spell it out for you? They are investing huge in wind and solar and other cleantech. Pollution and energy independence not the price of oil alone are factors in this.

As far as your prediction under 4. Sure this market is wild and anything is possible but I would be very careful if you are short going into earnings just a few weeks out.

Lastly they have 0 debt and already thriving Distributed power generation business. Wind is just the icing on the cake.

2008 Nov 14 09:50 AM

[JSbalaban:]

Good post there Buffet Jr! Just one area of clarification. The first Turbines are in fact going to be assembled during November and December and will be claimed in the Q4 ER. The remaining 40 are due by July, during which time I would imagine some of those LOI's will convert to signed contracts. ...... Yes, Kelvin has done very little dd on APWR! Just their new dist pwr contracts will indeed give them significant growth next year.

JBB


On Nov 14 09:50 AM Buffett Jr wrote:

> I am long APWR but am not a cheerleader for the stock and admit it
> has it's flaws however you are way off base and show a lack of Due
> diligence. They never claimed to have wind turbines up and running
> by November. They claimed to be receiving the parts from their partners
> in Europe Furhlander and Norwind in November. 1st Q 2009 is the target
> for rolling out the turbines. As far as the CFO yes that was a black
> market but it had nothing to do with finances being shady. He violated
> NASDAQ regulations by working for two companies at once.
>
> I don't know what you expected from the stimulus PR do you want China
> to spell it out for you? They are investing huge in wind and solar
> and other cleantech. Pollution and energy independence not the price
> of oil alone are factors in this.
>
> As far as your prediction under 4. Sure this market is wild and anything
> is possible but I would be very careful if you are short going into
> earnings just a few weeks out.
>
> Lastly they have 0 debt and already thriving Distributed power generation
> business. Wind is just the icing on the cake.

2008 Nov 14 10:36 AM

[Stockguy456:]

I have read some of your other articles and they are very good. This article is not. It is more like a blog than an article. What about SATC & MAG?

www.alternative-energi...
www.alternative-energi...

www.satcon.com/

2008 Nov 14 11:18 AM

[iggyDalrymple:]

"The company plays a big role in T. Boone Pickens's $2B wind farm project in Texas."

I thought I read that Pickens had abandoned the wind power project.

2008 Nov 14 01:17 PM