Saturday, July 19, 2008

Wind power with firm foundations

From the Financial Times:
By James Altucher

I decided last week to indulge in some food inflation so went to Arturo’s Pizza on Houston Street and ordered a $160 large pizza....
...Wait. Should I even be talking about food inflation? That’s so first week of June 2008. I can’t keep track of the “memes” of the day. Last week the hot topic was wind power. My good friend (at least on Facebook) T. Boone Pickens was on CNBC, in The Wall Street Journal and The New York Times, trashing our dependence on foreign oil and touting the benefits of wind power. He might be right, but it’s hard to say.

I don’t think I ever even heard investors talking about wind power until about three months ago. Suddenly all of these hot wind-power stocks that make no money started shooting up. My general approach when dealing with “hot topic of the day” type stocks is to look for back doors. Find stocks that have legitimate cash generating businesses, trade at cheap multiples and happen to be making serious moves in whatever the hot field is.

Take AeroVironment, for instance. It has been around since 1971, has $120m in cash and no debt, and generates a ton of cash in its primary business: making unmanned aircraft systems that hang out in the stratosphere spying on potential enemies, checking out hurricanes, forest fires, and whatever else it does up there for the military and its corporate customers. The company is growing at 25 per cent a year and trades at a fairly cheap (for its growth) price/earnings ratio of 22....MORE