Today we’re looking at a nice big burst of hot air (and yes, that title is, it seems to me, a load of hooey) from the folks at Green Chip Stocks — all in the interest of getting you a hot idea in wind energy, and, of course, driving your windlust to the point that you’ll subscribe to their newsletter.
Here’s how they pitch it?
“With oil at $65 a barrel, let me introduce you to. . .
“The ONLY Publicly-Traded Wind Developer That Actually Makes You Money When The Price Of Oil Goes Up!
“Over the past 5 months, the price of oil has risen more than 50 percent.
“And during this time, one wind energy stock has delivered gains in excess of 145%….
“Not a chance!
“In fact, that chart represents nothing more than a similar pattern we see every single time oil prices head north.
“Imagine being on the receiving end of that one when oil hit $140 a barrel!
“From May, 2007 to June, 2008 (around the same time oil prices were heading towards $140) this little wind energy stock soared from a low of $0.93 to $4.35.
“That’s a 367% gain in just 13 months.
“I don’t care how good you are – gains like that don’t happen every day.
“But this one’s definitely about to happen again.”
You don’t see words like “definitely” all that often in teasers — then again, you do usually get statements that completely strain credulity, like “the ONLY Publicly-Traded Wind Developer That Actually Makes You Money When The Price Of Oil Goes Up!”
Since of course, alternative energy stocks almost all spike when energy prices climb — and you can tell from just a quick look at a chart of USO (the exchange traded fund that many traders use for exposure to oil futures) and either of the wind power industry ETFs (PWND or FAN) that, yes, when oil goes down, wind stocks go down … and when oil goes up, wind stocks, on average, go up. So if that’s all you’re looking for, you can easily get exposure to the giants of wind power — utilities, equipment and turbine makers, windfarm owners, etc. — through the ETFs.
But if you’re curious about this little wind stock, which, one might expect, will probably also go up if conventional energy prices rise, and will perhaps be more volatile and offer some home run potential — well, let’s look at the clues and see if we can identify it for you.
It is a company that’s specifically exposed to California, which is a positive for any alternative energy company (assuming that the CA economy doesn’t sink so far that power demand collapses or they give up or relax their stringent clean energy laws).
Here’s how the teaser describes (exaggerates, perhaps?) the California impact …
“The Wind Energy Advantage In California. . .
“45% Higher Wholesale Pricing
“30 to 40% Higher Energy Yields
“500% Higher Retail Energy Prices
“So last year, when oil began to soar from $60 to $140 – this California wind developer (and its investors), made an absolute fortune.”
And they further the argument with CA’s latest clean energy law, which kicks in soon …
“Of course, even beyond rising oil prices, there’s actually something much bigger at play here. . .
“Something that’ll keep this one specific wind energy company generating revenue for decades – regardless of oil prices.
“You see, California has a law on the books that’s about to kick in just 6 months from now. And it’s a law that basically helps guarantee. . .
“20 Years Of Non-Stop Revenue For This One Single Wind Play
Starting January 1, 2010 – 20% of all power generated by California utilities must be generated from renewable sources.”
OK, so that’s the backdrop — they go on to say that there’s a possibility of a national mandate for increased clean energy use by utilities, and that although the “Wind Belt” that will supply most US windpower is along the plains states coming off the Rocky Mountains (from Texas up to the Dakotas) there is currently a profitable wind farm area in California, where this company operates …
“…. it’s primarily the winds in the Tehachapi region of California that are pumping out much of today’s wind-generated power.
“And this is exactly where our little wind developer has already set up shop.
“That particular region is so hot for wind development, on my last trip I actually recognized another analyst touring a neighboring wind farm.
“But here’s the difference between our wind play and every other wind developer in that region. . .
“While financing has almost completely dried up for new wind energy projects – our favorite wind developer has actually been turning offers down!
“In fact, they recently declined an offer of $228 million for the development rights for their latest project (including royalty payments).
“According to management, given the market for renewable energy today – developing their own projects simply provides a greater return.
“And boy are they right!
“My friend, today that project is worth more than a half billion dollars!”
So … that’s enough of a lead-in, how about some specific clues?
The company currently generates 34.5 megawatts of energy, and has no “project debt,” and brought in $5.1 million in revenue last year (wow, that’s REALLY tiny).
But they’re trying to expand aggressively, in the words of the ad:
“You see, on about 1,500 acres of California desert, this company is developing a new, 120 MW project that’s worth $700 million – thanks to a 20-year power purchase agreement that’s already been signed with a California utility.”
And finally, the stock has climbed from .61 to $1.50 a share since the beginning of 2009 (the ad says that Green Chip readers enjoyed a 300% run in the shares in 2008 during the previous oil price bubble, doesn’t mention whether they got out of the shares before they collapsed last year).
So, they think we’ll see gains of 112% in the next 6-8 months, which would, of course, be just lovely — and they believe it will come when the construction is really underway on their new project …
“You see, if there’s one thing I’ve learned about investing in these kinds of wind projects, it’s that little goes unnoticed once the bulldozers and cranes start moving in.
“Well, my friend – those bulldozers and cranes are creeping around the bend. And when they arrive, the bells and whistles are going to go off…and this stock is going to soar.”
Tasty, eh? So … want the name of this stock?
Loyal Gumshoe reader Brent Parker was the first one to send this to me, along with his suggestion for an answer to the teaser … and of course, like so many wise Stock Gumshoeians, he’s right … this is ..
Western Wind Energy (WND in Canada, WNDEF on the pink sheets)
Their two current wind projects that are actively generating electricity (they make up that 34.5 MW combined) are Windridge and Mesa in southern California, they have one development project in “late stage” development, called Windstar in Tehachapi. You can see the profile of their projects here, there are a few much larger ones in the pipeline but I imagine they’re very far off — the fundraising for just the Windstar project is pushing this little company pretty hard already.
And you might note that, like most wind stocks, this one does usually track with the price of oil to some degree … but that’s not necessarily true in the short term, especially when it’s being actively touted by a newsletter as big as Green Chip Stocks — as oil has collapsed in the last week, Western Wind’s share price has jumped up 25%, probably largely on the newsletter attention (though they did also just announce that they’ve engaged help for their fundraising from Manulife and are aiming for $200 million in financing for Windstar, which is probably positive).
So … they do have the potential of C$700 million from their power sale agreement for Windstar (we should note that pretty much all the numbers in the tease, and any dollar figures I used above, are in Canadian dollars, since that’s how Western Wind reports, so make sure to compare apples to apples when doing your analysis). That agreement is what makes it possible for them to raise the money, I imagine, since a $200 million loan seems quite reasonable when you’re going to be generating revenue in the neighborhood of $35 million a year for 20 years from the project. Apparently that debt will be at “market rate,” which I guess means we’ll have to wait and see just how lusty the lenders are feeling.
I don’t know if you’ll agree with Green Chip that you should buy these shares — I’d certainly be watching for a bit of a pullback if and when the touting turns to a trickle, since profits from this stock will be a long time coming and it will be driven by attention, hyperbole, and project developments along the way. So far the news ha been good with their financing seeming likely to come through, and with recent approval for the site from the local Board of Supervisors, but of course if there’s a hiccup in the funding, or construction delays, or just a lack of attention from individual investors because fossil fuels are getting cheaper, look out below.
These delays hit and challenges hit everyone in alternative energy, not just the little guys — even T. Boone Pickens and FPL, the biggest US utility with a significant wind focus, have had to scale back massive windfarm plans in the last year or so, wind energy competes with relatively clean natural gas and depends on high up front investments in equipment and land, so times are a little tough these days for many of their competitors even as Western Wind does seem to be at least on track, so far, for developing Windstar, their first big project (they’re also working to expand their smaller windfarms, and get preliminary wind data for other possible sites).
The share base for Western Wind, fully diluted (about 25% of the amount is warrants and options) is just under 60 million — so that means we’ve got a market cap of under US$70 million. They may not have any debt yet, but they will very soon have a debt load for Windstar construction that dwarfs their market cap, and they’ve also raised a few million here and there with share sales. Will it work? I have no idea, of course, but the keys seem to be the solidity of those forward sales contracts and the future California enforcement of their clean energy law requirements, and the relative cost of other alternative energy sources as well as natural gas.
Add on to that the fact that Windstar is not yet built, and you get some project risk (will it be on time, will the plans work, will it generate as much as is expected, will it support the debt load). And on top of that, we get investor sentiment, which is the main driver of all stocks in the short term but is particularly strong for unprofitable niche alternative energy plays, since you could probably make a case for valuing this stock at either .10 or $10, and folks could easily head for either extreme in the years ahead.
What do you think? Does Western Wind ruffle your feathers? Feel like sticking your head out the window to catch the breeze? Or is it, um, an ill wind that blows no good? Let us know with a comment below.