“Power Plays — Cash in on the Wind-Energy Revolution” Motley Fool

By Travis Johnson, Stock Gumshoe, October 15, 2008

Ah, another book-length teaser from the Motley Fool … just the thing to dig in my Gumshoe teeth after a few days of odd posts about the Gumshoe contest and Social Security payouts. Back to stocks!

Today our teaser is for the Fool’s Hidden Gems service, which according to Hulbert has been their worst-performing service over the last twelve months (Hulbert doesn’t track Global Gains, which has been decimated with the crash of the BRIC countries) — perhaps not surprising, since they focus on small cap stocks. Over time, my impression is that this has been a very strong service — at one point they did reach the coveted top spot for a brief while, and they have beaten the market over five years.

And they’ve brought a few interesting companies to our attention in the past, though certainly they haven’t all been winners (In the last year or so they’ve tried to hook us with Dawson Geophysical, LoopNet, Buffalo Wild Wings and a few others).

So what are they “teasing” today?

They call it the “Greatest transfer of wealth in the history of mankind.” Subtle, eh?

“An unprecedented economic crisis is coming — and $10 TRILLION is going to change hands. It’s NOT what you think — but it will create one of the most lucrative investment opportunities since the Industrial Revolution.

“GE, Goldman Sachs, JPMorgan, British Petroleum, and even Bill Gates are positioning themselves to cash in. And YOU can join them — IF you take advantage of the 3 timely opportunities detailed just ahead…”

No, they don’t mean the transfer of wealth from our brokerage accounts into the ether. What they’re talking about is alternative energy, and specifically wind energy.

And they drop every name in the book to help bolster their argument that wind is the future — The Economist, Bill Gates, the Wall Street Journal, Fortune, Barack Obama, Time, John McCain, British Petroleum, Blackstone, JP Morgan … phew! All those, according to the Fool, either spoke or wrote glowingly of wind energy, or invested in it.

I won’t argue with them on that one — they also lift a few bon mots from the T. Boone Pickens spiel and from the Pickens Plan advertisements … Pickens, in case you haven’t heard, is advocating a switch to wind for electricity generation, and to natural gas for transportation.

This is not the first time we’ve looked at a wind energy teaser, and I more or less agree that wind is a critical part of our energy future, though I have no idea how big it can get. Past teasers have told us about a Manitoba windmill farm, and about some of the big European wind turbine makers like Vestas.

And wind is one of the “easy” renewable sources, as long as you’re not worried about bird health — it’s relatively cheap and efficient if you place the turbines in reliably windy areas, and it doesn’t require quite as much subsidy as solar panels to be worthwhile. It’s not as easy a call as geothermal or hydropower in terms of efficiency, but there are a lot more places where you can throw up windmills.

So if we stipulate that we are interested in wind, what do the folks at the Motley Fool’s Hidden Gems have for us today?

Naturally, they throw out a few clues … and some tempting tidbits that get the appetite building, though the company name is kept juuuuuuust out of reach …

“… I want to show you how — starting today — you can begin building your own wealth by getting invested in an under-the-radar company that is uniquely positioned to cash in on what the world’s foremost wind-energy experts have dubbed…

“The Saudi Arabia of Wind”

“Everyone knows that Saudi Arabia is the world’s oil capital.

“But did you know that according to the Department of Energy, North Dakota alone has enough wind capacity to generate over a quarter of our nation’s electricity needs?”

Then we start to get a little bit more specific …

“Imagine if it were as easy as investing in a rock-solid, all-American company that follows Warren Buffett’s patented methodology of growing shareholder value to a T…

“Well, it can be — if you get invested in the remarkable, little-known company I’m about to introduce you to…

“Tack on the fact that it’s a major player in the North Dakota wind-energy market and that it pays a whopping 4% dividend and what have you got?”

“This amazing little company already has the largest wind tower construction capacities in all of North America. But get this…

“The president of its tower construction division recently announced that demand is so strong that it is expanding one of its factories by 40% and another by 100%.

“And by locating these two factories in epicenters of wind-energy growth — Fargo, North Dakota, and Tulsa, Oklahoma — this company has placed itself directly in the slipstream of these highly profitable markets.”

A few other clues for the mighty Thinkolator:

“Management recently announced plans to buy a significant stake in two thriving wind farms.”

“… And don’t forget, it strategically invests the capital it generates in the same forward-thinking, shareholder-friendly way that turned Berkshire Hathaway into a legendary company and Warren Buffett into the world’s richest man.”

“No wonder Bill Gates recently snapped up 9% of this breakout company!”

OK, so there’s lots of flotsam to read through in order to find those clues … but we’ve got them. What do they tell us? Well, when properly fed into the Thinkolator — watch your fingers! — we learn that this company is …

Otter Tail (OTTR)

You may have heard of these guys before — they’ve even gotten the Jim Cramer treatment when he was yelling about wind energy a few month back. It has been a favorite of the Motley Fool’s for quite some time, and it has been proposed by several folks as one of the many little “mini Berkshire Hathaway” stocks. And yes, Cascade (Bill Gates’ investment fund) does own about 9% of Otter Tail, most of it probably bought at prices significantly higher than what you’d pay today.

So what is it? Well, it’s not just a wind company. Otter Tail is an electrical utility in the upper Midwest that has used it’s cash flow to create a diversified holding company that owns all kinds of businesses, from plastics to manufacturing to transportation and all kinds of other stuff. One of those companies is DMI Industries, a heavy steel manufacturing company which builds wind turbines. DMI did indeed up its production plans earlier this year to help meet demand, as teased in the ad (you can see the press release here if you like). The revenues from DMI make up far less than a quarter of total sales, though it is the fastest growing subsidiary … and the core electrical utility is also investing in wind energy, as was teased — using, one would assume, the towers built by their subsidiary.

And to some extent you can make the Berkshire Hathaway comparisons look feasible — OTTR is tiny, with roughly a $700 million dollar market cap (it was well over a billion just weeks ago), but they do have a diverse set of companies under their umbrella, all arranged around a core cash-producing business. In this case it’s an electrical utility while for Berkshire Hathaway it’s a group of insurance companies, but there are some similarities. As for Berkshire, Otter Tail is decentralized and focused on predictable businesses — they buy simple, understandable companies that will be immediately accretive to the bottom line, and they let the companies make their own management decisions.

The non-utility businesses have also been gradually building, to the extent that last year they actually made up a bit over half of the earnings pie.

Otter Tail now pays a good dividend — for a while the quarterly payout was negligible compared to other utilities, back when the share price was hitting $40, but now that the stock has fallen to close to $20, a price it hasn’t seen in six or seven years, the yield stands out as a pretty nice 5%.

Now … is wind energy going to suffer at all with oil and natural gas dropping dramatically in price? Is our current oil market just a short-term reflection of a slowing economy, or does this portend a long-term trend, a return to cheap energy?

I’d guess the former, but it’s only a guess. I don’t believe that we’ll be escaping from the petroleum economy within the next 20 years, or that emerging economies will leapfrog oil and gasoline for their booming transportation needs, though it may be that everything slows down for a while, but it also seems to me that political and environmental demands will continue to increase alternative energy development and utilization. Particularly if you’re investing for six months instead of for six years, this is a call you’ll have to make to set your own comfort level. Meanwhile, Congress did pass an extension of wind energy tax goodies that should help, and wind remains the fastest growing part of the electricity business — though it’s growing from a very, very small base, I think wind currently is responsible for about 1% of US electricity generation.

Should you buy Otter Tail? I dunno. If you want just wind power there are some more focused investments you can make, including the big European companies that dominate the industry, and you can also buy one of the wind power ETFs (First Trust has one with the ticker FAN, PowerShares’ version is listed at PWND, both are heavily weighted in Europe). But OTTR is certainly an interesting beaten-down company that plans to get some growth from wind.

I can tell you that I lost track of the company for a couple years when it seemed expensive, and I hadn’t realized that the shares had fallen this far, so I’m pleasantly surprised … and a little tempted. They recently raised about $150 million, which is a big chunk for them, and will be using that money to invest in wind energy. If that works out, maybe Otter Tail will make your portfolio wag a little in the long run.


full disclosure: I own shares of Google, and have a small position in General Electric call options. I don’t own any other company or investment mentioned above.

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41 Comments on "“Power Plays — Cash in on the Wind-Energy Revolution” Motley Fool"

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Carlo
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October 15, 2008 10:17 am

These guys follow the analysts crowd…

Graham Jervis
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Graham Jervis
October 15, 2008 10:37 am

didnt they raise cash recently by selling stock? isnt that dilutive to shareholders?

Kris
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Kris
October 15, 2008 10:50 am

Besides birds, wind turbines are death on bats. Major environmental issue.

Brian
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Brian
October 15, 2008 11:26 am

Bats rights over Humans need for power, ?

A. Nony Mouse
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A. Nony Mouse
October 15, 2008 11:45 am

I dunno, I think I would increase my alternative energy holdings with Obama only days away from being elected, and promising massive investment in the sector. In fact, SunTech Power (STP) also looks bargain basementy in rice right now

Jerry G
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Jerry G
October 15, 2008 12:33 pm

A gentleman im my upper middle class town wanted to erect a wind turbine at his place of business , a carwash, to , Go green , save electricity , yada , yada yada….Bottom line he was TURNED DOWN by the planning board , neighbors feared the noise from the wind turbine would drive them nuts…Who can blame them LOL

Wizard10
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Wizard10
October 15, 2008 1:04 pm

Wind, Solar, Nuke, Geo thermal, natural gas,etc.
Just 5% each we would start to become energy
neutral (INDEPENDENT). Everyone gets something
just starting with 5% for each of the above.
No simple answer to our energy problem.
This is a Democracy each gets and gives just 5%
and we are on our way to INDEPENDENCE !!!!

Glads
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Glads
October 15, 2008 2:35 pm

Gumshoe and everyone, what do you think of APWR? It’s way cheap now. Is this a good buy?

Gravity Switch
Admin
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October 15, 2008 2:44 pm

The first time I had ever heard of this one was when someone submitted it for the contest — Chinese small caps (even microcaps in this case) are incredibly out of favor right now, you can certainly find some compelling valuations … if you believe their financials and understand their business positioning, and you think they can survive a very slow economy in much of the world.

That’s just a general comment on these kinds of stocks, I known nothing about these guys other than what I saw upon a quick glance at the ticker page on Yahoo Finance.

ray penrod
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October 15, 2008 2:47 pm

dear gumshoe, excuse this way of communicating with you. i not too computer literate. in your recent recent contest, i plugged silver. the next day one of my stocks that has been driving me crazy came up with a new beesness. they are developing a CURE for declning bee population. intk projects that they have 55 million bee hives that need their newly developed project. i think intk might be a good prspect for you to sleuth.

Cindy Schermerhorn
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Cindy Schermerhorn
October 15, 2008 5:00 pm

Hello Gumshoe, I used to live in the middle of Nebraska where the wind blew continually and never stopped. If they put wind turbines in Nebraska, they would have enough power to supply the entire universe. I love your newsletter.

sniper
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sniper
October 15, 2008 7:20 pm

They should erect wind turbines all around DC. There is more hot air flowing there than any other place on this planet.

Chris O
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Chris O
October 15, 2008 9:29 pm

Cypress Semiconductor Corporation (CY) is also in the wind game. Steve Sjuggerud from Stansberry’s recommended to buy and hold it until the election many months ago when it was between 20.00 and 30.00 range (from memory). He then advised to sell it as it was doing nothing – immediatley after which it went up a ways! But now it is languishing around the S Bend of the dunny (an Aussie technical term) at less than 4.00.
With the wind story (pun not intended) in mind, is there anything to suggest this stock is now a screaming bargain?

George
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George
October 15, 2008 11:46 pm

Gumshoe:
Yeah, when I signed up for Motley Fool Stock Advisor, one of the “Guaranteed” picks was JetBlue… I liked their reasoning (even had the stock for awhile), but let us just say that life overtook the Fools…..not to mention Mr. Neeleman and Jet Blue… (this was BEFORE the Valentine’s Day Debacle for them….)

the mayor
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the mayor
October 16, 2008 9:24 am

AAE is a 25 cent Wind Stock from Canada….Alot of potential….and My stock Contest pick QMNM is up 50% since the contest…..Kentucky Coal Mining Co. They are ready to Run Up bigtime….Take a look.Peabody is building the Largest Liquified Coal Plant in the world in Kentucky…..All signs point up for QMNM…….Obama loves Liquified Coal!

Chris O
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Chris O
October 16, 2008 10:56 am

Your’e right, I got the solar and wind thing mixed up. But thanks for the info about the spinoff.

Mike
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Mike
October 21, 2008 4:30 pm

The Fool newsleter just hit my inbox. So glad to see you already covered it here. They also mention the need to invest in the “special class” of stock as opposed to the common. I assume they mean some version of their preferred stock, would that be correct?

Gravity Switch
Admin
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October 21, 2008 4:58 pm

If I remember correctly, by “special classes” of stock they just meant “small cap stocks” — I don’t think they meant anything fancier, though they occasionally recommend spinoffs and “b” class shares (don’t think ottr has either).

spOILweaoon
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January 16, 2009 5:16 am
I believe next to natural gas, coal is one of our most abundant natural resource fuels, although it can be quite dirty. Coal liquification into gasoline and diesel seems like an incredible opportunity to profit from if the right company with the right clean cost-effective technology to take theory into production on a large scale. Headwaters (HW) seems like a company poised to spring into massive profits quickly, especially with all the gov’t money being thrown at clean renewable energy independence, which is more than just a cost and environmental issue, but essential to US National Security. The forward P/E… Read more »
brian
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brian
October 24, 2009 3:29 pm

Motley is at it again with OTTR. They just sent out a teaser for it. This time it may be ready to break out. I wasn’t so sure last year when there was tons of talk about it. Any thoughts people?

Jon
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Jon
December 19, 2009 6:34 pm
Looks like it is a good company. TMF just sent out another teaser for it and the stock price ran up on friday a little bit. It is up 5% or so since thursday, 12-17-09. For the last few months the stock price has been relatively flat. Seems like a good buy range would be 22.50-23.50. With how things are going right now. Depends on how long you want to wait. Some of the things I was noticing about this company is currently it is on a down cycle on its revenue generation with a slight uptick for Q3 2009.… Read more »
Gravity Switch
Admin
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October 15, 2008 10:46 am
Yep. That’s the $150 million I mentioned at the end, they say they’re using it for wind investment. It pales in comparison to the $500 million they’ve lost in market cap in the last month or so, but yes, I would assume the capital raise would be dilutive to earnings, at least in the short term. Most of the money is used for that big expansion at DMI, for which orders are apparently already coming in. They timed it pretty well — they sold the new shares at $30 about three weeks ago, and they’re now at $22.
Gravity Switch
Admin
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October 15, 2008 11:12 am

I’ve read that — though they also claim that they’re getting better thanks to slower spinning blades and tubular non-latticed tower designs that don’t attract flying creatures. I’m certainly no expert, that’s just the proponents’ case.

Olaf Olafsson
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October 16, 2008 8:23 pm

As mentioned wind is big Europe (as Vestas in Denmark) and they are very envormentally councious and have plenty of birds, still have not heard about any “bird killing” problems.

Gravity Switch
Admin
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October 15, 2008 11:49 am

I’d actually like to convince some more bats to move into my neighborhood to help with the mosquitoes. But then again, I doubt the neighbors would want a wind turbine in our alley anyway.

Gravity Switch
Admin
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October 15, 2008 11:50 am

McCain’s promising big investments in this area, too, generally speaking … though I haven’t analyzed the differences between their energy plans.

Catguy
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Catguy
October 15, 2008 12:41 pm

I guess cats are a major environmental issue then, as far more birds are killed by cats than by turbines…honestly, get over it.

Glads
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Glads
October 15, 2008 8:00 pm

Thanks for the input Travis. Though both candidates favors renewable energy, and a one year extension of the Production Tax Credit (PTC) was part part of the approved version of the bailout bill, I’ve decided to wait and watch this market closely before buying.

Olaf Olafsson
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October 16, 2008 8:33 pm

Well a lot of analyst are listing them a buy and Warren Buffet just invested in a Chinese batterymaker BYD that is to make Ev´s and this ties in to the Chinese “electrical” ambitions.

Wave_Rider
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Wave_Rider
October 18, 2008 4:01 pm
Hi Travis & Glads A lot to like about APWR – (using MSN Money charts) – they appear to have bottomed at $4 (5 clear waves down from the high in July 08) – not much room left to fall – not as much as $31 > $4. This leaves room for a climb to $15 over the next 6-12months – followed by another fall to $4 when the Alt-A refinance problems hit the world in Apr-Jun 09. They seem to have good forward orders and connections inside China for further “good news” announcements on internal projects to correct China’s… Read more »
Gravity Switch
Admin
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October 15, 2008 8:02 pm

Definitely can’t blame you for that …

Gravity Switch
Admin
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October 15, 2008 8:02 pm

Have never heard of them, but maybe I’ll have a chance to take a look someday — thanks.

Gravity Switch
Admin
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October 15, 2008 8:05 pm

That’s what I hear — and I probably should have mentioned a little more about windy spots, North Dakota may think it’s the “Saudi Arabia of wind”, but that whole belt from North to South on the eastern edge of the Rockies and the western plains is one big bad hair day — from T. Boone’s Texas wind farm all the way up through to Manitoba.

Gravity Switch
Admin
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October 15, 2008 8:06 pm

Hey, give us DC folks a break! We don’t even get to vote for the idiots that you send us (though they’re happy to take our tax money).

Gravity Switch
Admin
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October 15, 2008 9:38 pm

I think you’re mixing wind and solar — CY used to own and control SunPower, they gradually sold it off over the past few years and just last month spun off the rest (or at least most of it, not sure) to CY shareholders. Cypress is now just a chip design company, for good or ill, if they’ve got any exposure to wind power it’s news to me — and about the only thing going for Cypress in the last few years has been their ownership of SPWR, so it might be a tough sell.

A. Nony Mouse
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A. Nony Mouse
October 15, 2008 11:16 pm

McCain is willing to add nuclear power if I thought he would win, I would be a big buyer of Exelon. Alas the Dems are still hung up on the China Syndrome and Three Mile Island. What they have too realize is that most nuke power plants today are built better than Jane Fonda

Adam
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Adam
October 16, 2008 1:52 am

I agree. I consider myself a strong enviromentalist but if it’s a choice between clean energy or a couple of birds/bats/whatever being killed by a fan, there’s no question.
And it is by no means a MAJOR environmental issue. It’s virtually infinitesimal.
Be realistic for god’s sake.

Carol Talbot
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Carol Talbot
October 17, 2008 1:57 am

The problem of the declining bee population has been going on for a while. If a company has actually got a sound means of reversing the problem it could be worth a lot of money. However, the causes for declining bee populations have not been identified although there are a fair amount of suspects ranging from global warming to pesticides and all points in between. The problem is real and has the potential for worldwide rather than localised famine is highly possible.

Kevin Abbey
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Kevin Abbey
October 27, 2008 10:08 am

I think we should call this problem “Global Swarming”…….

Wave_Rider
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Wave_Rider
October 18, 2008 4:25 pm

Goes up in small increments & down in big jumps & gaps – Completed 5-waves down and now appears to be in the 3rd wave up/retracement (imagine a’N’-start at bottom left of ‘N’ & finish at top right) – may crawl up to $28 before the next drop – Buy again at $15/$16 or even $10,or $5 – this crash is only just getting halfway thru – don’t get suckered into Buy & Hold yet.

The Federalist
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The Federalist
November 24, 2008 12:19 pm

No sir, this is a Republic. It is NOT a Democracy.

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