Thursday, March 15, 2007

Speculative Long

AWNE - $1.80

During my travels to Costa Rica in December; I was privileged enough to stumble upon a precariously perched wind farm in the hills near Volcano Arenal. Aside from some minor scouting I didn't investigate the farm in any great detail. However, reflecting back I recall two major impressions: The convoluted location and the shear power elicited by hundreds of 50 meter tall turbines thundering in the wind.

Having been a huge advocate of economically competitive alternative energy, I have followed the development of the wind industry starting with General Electric's 2002 bid to buy Enron Wind for $358 million-a profitable business of the now defunct Enron Corp. General Electric has in turn made out quite nicely on their initial investment with, "GE Energy delivering 1,346 wind turbines worldwide during 2005, completing the year with revenue exceeding $2 billion - more than a 200% increase over 2004's total." General Electric's backing and their performance thus far has defiantly strengthened my belief that wind energy will continue to grow in global popularity as civilization searches for cost effective, cleaner energy sources.

General Electric aside, the US wind market has grown significantly as the cost to build these farms as decreased substantially over the decades. Back when the first commercial scale wind turbines where installed in the 1980s, installed costs ranged higher than 30 cents/per kilowatt-hour. Today the situation is much different. Modern farms are now being built for less than 5 cents/kWh with the current Production Tax Credit.

Growth in 2005 proved to be a very impressive for the wind industry with installments reaching over 2,400 megawatts (MW) or $3 billion worth of new generating equipment in 22 states. The developments of 2005 boosted the total U.S. installed fleet by 35% bring the total capacity to 9,149 MW, or enough energy to power over 2 million homes. In other words, the industry is experiencing massive growth.

In order to participate in this growth, I did a little research. First, I ruled out massive companies such as General Electric and FPL Group, Inc. which only attribute a small portion of their earnings to the development of wind energy. Next, I tossed out the crummy pink sheet, non filing, near defunct, token companies such as U.S Wind Farming, Inc. Finally, I shied away from pure plays trading on foreign exchanges like Gamesa Corp due to insufficient liquidity and pink sheet status.

I was finally able to locate a well run pure play Canadian based company, Americas Wind Energy, which acts as a virtual manufacture of Lagerwey wind technology in the Americas. Arguably, one of the more attractive features is the company’s direct drive technology which does not use a gear box and thus results in less mechanical strain, less down time and ultimately longer equipment life.

Although the company has signed several contracts over the past months, they are still in their infancy and should be viewed as a highly speculative investment. That being said, I watched as AWNE dropped over 20% the last 4 trading days on light volume. Technically the chart is entering into over sold territory, as it collapsed out of its trendlines and is now sitting at support. I took advantage yesterday and entered a position at $1.80.

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