TMFDeej (99.50)

The answer my friends is blowin in the wind

May 19, 2008 – Comments (9) | RELATED TICKERS: GE , FPL , WWD

What looks like it is the next trendy alternative energy play?  As Bob Dylan would say,

"The answer, my friend, is blowing in the wind

The answer is blowing in the wind" 

Solar stocks have been on quite a run lately, but the next "hot" alternative energy sector appears to be wind power.  I have seen a number of articles and television shows on the subject lately.  I suppose that this isn't all that surprising given that the U.S. Department of Energy issued a report just last week stating that it believes wind power is capable of generating 20% of the United States' power by the year 2030 (see site: 20% Wind Energy by 2030).

I don't personally think that there is enough land in the world to make wind the only solution to all of our energy woes, but when combined with other things like nuclear power, solar, etc... it can eventually be part of a solution.  Even if it's complete nonsense one can ride the momentum and make some money until everyone figures out that is the case.  Heck, even ethanol companies provided HUGE returns for any investors who jumped on them when they first started to go public.

I currently only have a small position in one wind play in my portfolio and it is not a pure play.  The company that I own is Woodward Governor Company (WGOV).  WGOV is active in a number of industries including developing products for airline engines and improve energy efficiency, but the thing that seems to be catching investors eyes' is the company's wind turbine products.  I added a small position in WGOV to my real-life portfolio a little over a month ago (April 10th) and that position is now up around 42%.  Talk about wishing I had bought more.  Woodward Governor has been consistently improving its earnings over the past several years, but at nearly 25 times earnings, it is no longer the bargain that it was a month ago.

Another company that has crossed my radar screen in my hunt for wind stocks is FPL Group (FPL) aka Florida Power and Light.  The bulk of FPL's revenues come from regulated power generation in Florida, but there's more to FPL than that.  The deregulated portion of FPL's business is what makes it interesting.  The company has power plants that generate electricity from a number of alternative sources, including hydro, nuclear, wind, and solar.  It is currently the United States leading producer of wind energy, with 49 wind energy facilities in operation in 15 states.  FPL's 2.8% dividend makes it even more interesting.

Yet another company that is involved in wind energy is Otter Tail Corp. (OTTR).  Otter Tail is a small, very diversified company that is involved in all sorts of things.  Its core business is power generation, but it is involved in everything from growing potatoes to producing PVC pipe to manufacturing medical equipment.  What makes Otter relevant to this discussion is its DMI Industries subsidiary which manufacturers wind towers.  Like FPL, OTTR pays an attractive dividend of a little over 3%.  Unfortunately, this aspect of OTTR's wind tower business is really not large enough to make a good wind play, but it’s something to keep an eye on.

Of course, one can't mention wind energy without throwing General Electric (GE) into the conversation.  I love many of GE's businesses, like infrastructure, water, power, etc...  The problem with GE is it's so HUGE.  I guess that's why the market isn't providing it with a higher multiple.  If GE ever decided to break up into separate companies, I would be all over it.  Wishful thinking leads me to believe that its recent hiring of Goldman Sachs (GS) to explore strategic options including a spin-off or sale of its appliance division (General Electric to shed appliance unit) might mean that it is heading in that direction, but I doubt it.  Over the past five years, GE has moved in lockstep with the S&P 500...until it got crushed when it brought bad earnings to life with its quarterly report in early April.  Since that date the S&P 500 has significantly outperformed GE.  I can do without NBC / Universal, GE Capital, etc...but this might be an intriguing entry point for the company, especially with a dividend of nearly 4%.  That's what's great about blogging.  I would have never considered purchasing GE before looking at its divergence from the S&P 500 for this piece.  Now I'm very intrigued.  I need to find a spot for it in my CAPS portfolio and perhaps eventually in real life.  Too bad it's tough to tell how messes up its financial arm is.  I guess that why we're getting the discount.  Hmmmmmm.

Another big wind player is the Spanish company Iberdrola Renovables (IRVSF.PK).  It builds and operates wind, hydroelectric, and solar power plants in a number of different countries.  Unfortunately, as you can see it only trades in the U.S. on the pink sheets.  That is a big negative in my book.

Wow, this went on for a while.  I'm out of time for now.  I'd love to hear any other wind ideas that anyone out there has.

Deej

Long WGOV