One hot thing...

Let's talk about one hot little mama of a stock that a lot of people probably do not know enough about. This stock is involved in the development of power distribution in the fastest developing part of the world. It contracts not only with businesses but also with governments... yes... the governments, unlike ours, that have tons of money (ours actually) and are determined to use it to build up their countries. In addition, this company has recently become involved in wind power generation. No small projects either.... these guys look to be right in the heart of perhaps the most promising wind power alternative energy development on the globe.

Those who have read this blog for a while know that I am big on companies that are involved in the secular globalization of ... the globe. I have been huge on the potash fertilizer stocks (other fertilizers as well but those especially), on China Medical, a play on the enormous growing need for medical diagnostic tests in the world's largest country, on SDTH, which is involved in the NPCC technology that has a potential market that is sky high... and also chemical fertilizer interests to boot, and on many many other companies (Did I mention coal and steel)...

So with out further ado the company is...

APWR

Here's the profile on yahoo:
A-Power Energy Generation Systems, Ltd. designs, constructs, and tests distributed power generation and micro power grids to factories and users in the People's Republic of China. It incorporates standard power generating equipment into an integrated system that includes refined control systems to balance power generation with demand. The company also offers automatic control system, which monitors the performance of equipment in the system, including the boiler, turbine, generator, grid supply, demand, and distribution, as well as space and water heating functions. Its target customers include companies operating in various industries, including steel, chemical, cement, food processing, and ethanol; and municipal governments, as well as state-owned Chinese power companies. The company was founded in 2003 and is headquartered in Shenyang, the People's Republic of China.

The potential of this company is staggering. It's almost like, were it possible, buying a British coal plant stock at the beginning of the Industrial revolution or buying a highway infrastructure stock in the US at the time when the major highways were being developed in the US. China, and Asia in general is like the late 19th and early 20th centuries periods in North America and Europe except that these combined regions are much much bigger. However, there are still risks involved. APWR is far from it's 52 week low around 7. Like many stocks in this market, APWR has been a great trader's stock in the 20 to 30 region but not so good as a buy and hold investment. I believe that over time this stock, like many of the names I have covered, will just not be able to stay down because the earnings won't let it... still I guess the point is it is very very important to look more closely at this company before taking the plunge.
Let's start with some recent news developments

• July 23, 2008 -- A-Power Energy Generation Systems, Ltd. (NASDAQ: APWR) announced that it has signed a Memorandum of Understanding with the National Power Supply Co., Ltd., a subsidiary of Advance Agro Public Co. Ltd., a large Thai-based conglomerate, to develop a 600 MW distributed power generation system worth approximately $300 million in Chachengsao Province, Thailand. The project is expected to begin in August, 2008 and will be completed in approximately 42 months. Mr. Jinxiang Lu, A-Power's Chairman and CEO, commented, "This project represents a significant milestone for A-Power as it will be our largest distributed power project and second major project with National Power Supply in Thailand. National Power Supply is a major provider of electricity to Thailand's state-owned power grid and we are excited to announce our expanded relationship with them. Based on our performance on the contract we signed with them in April to construct a 300MW distributed power system, we have reached an agreement to construct this new 600MW system and are in discussions for multiple other opportunities." Mr. Lu continues, "Thailand and other Southeast Asian countries continue to struggle to provide a consistent and adequate power supply to feed their growing economies and based on our track record, efficient distributed power system design and ability to quickly develop new high-quality systems, A-Power is well positioned for major contract wins in this region."

• (Reuters) - Power systems firm A-Power Energy Generation Systems Ltd said it has signed a deal, to build a wind turbine production facility, with the Chinese city government of Bayan Nur. A-Power said Bayan Nur, situated in Inner Mongolia, is located in one of the three premium wind belts in China, and the Chinese central government has approved 2,100 MW of wind power generation in the Bayan Nur region alone. "The 800 MW annual wind turbine production capacity at this new Inner Mongolia facility combined with over 1,000MW from the first phase of our Shenyang production facility will give A-Power an annual wind turbine production capacity of over 1,800MW by the end of 2009," Chief Executive Jinxiang Lu said in a statement. The company said the 290,000 square foot plant should cost about $20 million and is expected to be completed in July 2009. The plant will make wind turbines of 2.5MW and 750kW capacity, it added. The company said that under the deal, the city government has agreed to tax breaks and to coordinate sales with wind farms in and around Bayan Nur region.

• Jun 27-"A-Power"announced today that it joined the broad-market Russell Global Index when Russell Investments reconstitutedits comprehensive set of U.S. and global equity indexes on Friday, JuneMembership in the Russell Global Index, which remains in place for one year, means automatic inclusion in the appropriate large-cap, small-cap,all-cap indexes as well as the applicable style, sector and country indexes. Russell determines membership for its equity indexes primarily by objective, market-capitalization rankings and style attributes. Mr. Jinxiang Lu, A-Power’s Chairman and CEO commented, “We are excited about our listing on the Russell Global Index. By joining the Russell index, A-Power joins many of the leading companies in the world in terms of market capitalization. This appointment is expected to increase our exposure among institutional investors and investment managers and is an indicator of our strong continued growth.”
• Here is a great look that sums everything up and more......
  

Now... as I am a fundamental person deep down inside (yes I do believe in DCF models... just not in this market)... Let's take a look at some of the fundamentals:

• Company's FY earning guidance is $1.04-$1.34 and analyst est is $1.14.
  
• At $25 a share that makes the FY PE between about 25 and 20... Very reasonable for a company projected to grow 50% a year for the next 5 according to yahoo. Figures of 50% are hard to trust but 25-30% a year at a minimum is reasonable. PEG 1 or lower.
  
• The company has more cash than debt... and nice debt/equity
  
• Fwd PE under 15
• Operating margins around 10%

In all markets, this one especially, technicals must be taken into account:.
Let's take a look at the chart:


Resistance, or a short-term double top around 32 and support at the lower Bollinger around 22 or above. Interestingly the Bollingers have condensed recently... narrow volatility can often proceed moves... this chart definitely should be watched closely... Slightly negative MACD... a move down to the lower Bollinger could be a buying opp or a high volume move up from here could also be a good buy. Longer-term I think this company should be on everyone's radar.

BTW... I think wind is going to be big going forward. I took a class when I was at UCLA that covered alternative energy and peak oil. Wind power is already very cheap... It may be the cheapest alternative energy source that can also be quickly generated (unlike geothermal which will take time if the US goes this route)... Why the US hasn't expanded this further already ?

As is happening more and more the rest of the world gets it...


"The Yellow Rose Street Beat" is for informational purposes only. It does not give investment advice.