Two experts eye American Superconductor (AMSC)

By Steven Halpern, TheStockAdvisors.com | Jan 12, 2010 | comment

Among the 80 participants in this year's Top Picks report, there was only one stock that was picked by two separate advisors -- alternative energy play, American Superconductor Corp. (NASDAQ: AMSC).

The stock was chosen by Michael Cintolo (at left), editor of Cabot Top Ten Report, as well as  Jim Oberweis, Jr., (at right), money manager and editor of The Oberweis Report.

Michael Cintolo explains, "While alternative energy hasn't been a terrific sector for much of 2009, we're beginning to see some great strength in the group as investors discount accelerating growth in the quarters to come. And my favorite stock is sure to benefit from this trend, as it's the #1 wind power story in the market today.

"We're talking about American Superconductor which designs many different wind turbines and then licenses them to customers that want to get into the wind business; customers are obligated by contract to then buy AMSC's wind electrical systems-basically the brains of the wind system.

"Its biggest customer (by far) is Sinovel of China, which wasn't even in the wind industry a few years ago, but is set to become a top five turbine maker next year. And many other customers, including Hyundai Heavy Industries (which is going to have a big presence here in the U.S.) are set to ramp up production in 2010.  

"Because of all that, revenues have leaped more than 80% in each the past two quarters, earning are ramping up quickly and management has stated it expects fiscal 2011 (ending next March) revenues to grow more than 33%, and earnings of "at least" $1.15 a share.  

"Interestingly, because alternative energy stocks have been out of favor, AMSC hasn't done much in the second half of 2009. It spent two months building a launching pad, then broke out powerfully after an earnings report in August.

"But then it spent another four months building a new launching pad! Happily, AMSC has just broken out on the upside, which leads us to believe the buyers are finally ready to push the stock much higher as 2010 arrives."

Jim Oberweis Jr. suggests, "Looking for a way to bet on a continued rebound in technology stocks, a rise in worldwide demand for energy, and China…all in one?" The consider American Superconductor.

"The bulk of their business today comes from the wind power industry, as AMSC designs wind turbines and sells turbine electrical systems that can be customized for each customer.

"AMSC is the leading provider of electrical components to the leading Chinese wind turbine manufacturers, with Sinovel being their largest customer and representing roughly 75% of their revenues.

"Sinovel is the leading player in the Chinese market and continues to successfully take market share from competing players.  While Sinovel’s growth is AMSC’s gain and their relationship has only strengthened as of late, sales concentration remains a risk.

"AMSC continues to mitigate this exposure through deals with several new international wind power customers.  Hyundai represents another important customer and has already announced orders both in the US and Korea.

"Customer Doosan in Korea has ambitions of becoming a top ten manufacturer as well.  AMSC has several other attractive growth opportunities that should help to diversify their business.

"Within the power grid market, the company sells power systems to utilities to help them control power output from renewable sources. With expected growth in electricity usage over the next few decades utilities are planning now to prevent costly power outages.

"AMSC products increase the reliability and capacity of the grid, directly addressing the growing problem of grid voltage instability. The company’s superconductor business represents another exciting growth opportunity.

"As renewable power stations continue to grow, so does the problem of collecting the energy they produce and efficiently transporting it to the place it is used.

"These stations are often erected in rural areas while the demand for their produced power is a good distance away, in more densely populated areas.

"The copper wire that is currently used suffers from an inability to span long distances efficiently, thus causing power line losses among other costly issues.

"AMSC is the leading manufacturer of proprietary high temperature superconductor (HTS) wire, which can carry roughly 150 times the electrical capacity of standard copper wire and will better handle the growing demand for energy usage worldwide.

"The company must win contracts here in order to achieve profitability within this business, but we expect rapid growth both here and abroad.

"The proof is in the pudding, of course. Amidst a weak economic backdrop, the company grew revenues by 85% in their latest reported quarter as they announced their third consecutive quarter of profitability.

"The future looks bright as well. After booking approximately $165 million of orders in their latest reported quarter, AMSC enjoys a backlog of orders valued at roughly $587 million.

"The stock should reward investors in 2010 as AMSC reports continued growth in the final two quarters of their current fiscal year (which ends in March), followed by a near doubling of earnings in the following year."

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