“A Pioneer in Creating Highly Efficient Vehicles” from Cabot

by Travis Johnson, Stock Gumshoe | May 20, 2009 8:51 am

This one’s from Brendan Coffey and the fine folks at Cabot[1] in an ad for their Green Investor[2] newsletter (click here[3] if you’ve ever subscribed and wish to review it) — and it’s all about a company that is a defense department contractor, but also has some potential as a “green” company.

The letter is a teaser of sorts, for the “5 Most Promising American Green Companies to Buy Now,” but they do actually mention the name of one of those companies in the letter — and they leave us with a little pile of clues about the others.

Along the way, they provide what has become sort of the standard push for alternative energy[4] as an investing strategy — Bill Gates[5], Warren Buffett[6] and T. Boone Pickens[7] are on board, and this will be the next major revolution in technology and American life, so get with the program already.

Here’s their wording:

“At the turn of the 20th century it was Oil. At the end of the 20th century it was the Internet Explosion.

“Now, government and corporate powers-that-be are scrambling to back the next–and possibly the most groundbreaking–technological revolution in history.

“Here’s How You Can Follow the Money to what may be the single biggest investment opportunity of your lifetime!”

So that makes you sit up a little bit in your seat, eh? Maybe pay a little attention? That is, assuming you haven’t become jaded from reading 7,382 similar pronouncements in the last six months (full disclosure: that number was invented, because I’m too lazy to count).

The one company that they “reveal” for us in the text of the ad is TetraTek, the environmental (broadly defined) consulting firm — that’s certainly a fine company, and you can argue it’s a bit expensive, or that it’s cheap compared to its growth potential. You can make your own call on that, let me move on and figure out the company that they don’t reveal.

Here’s how the clues are worded in Cabot’s letter:

“This company is a pioneer in creating highly efficient vehicles that run without the benefit of fossil fuel. But it makes the bulk of its cash from a decidedly less bucolic business–the military.

“This fascinating company supplies a vital part of the U.S. Army’s surveillance arsenal–small lightweight aircraft (think glorified model planes) that soldiers launch into the air by hand. The Army uses these planes to conduct local scouting missions in the city and the mountains, enabling platoons to see via remote camera the lay of the land and the location of potential enemies. The most popular of these is a 4.2-pound drone with a 4.5-foot wingspan guided by remote control.

“Is it Green? Well, the alternative would be using a propeller-driven aircraft and crew like the U.S. Army’s RC-7 “Crazy Hawk,” which weighs 47,000 pounds and eats fuel for lunch–or sending
soldiers into the line of fire.

“By the way, this firm was chosen as one of the “Rising 10″ most promising, fast-growth companies by Homeland Security Today, and was recently added to Standard & Poor’s Small-Cap 600 index. Brendan
added its stock to the Cabot Green Investor portfolio on January 8.”

So who is this? Thinkolator sez …. Aerovironment (AVAV)[8].

Aerovironment was indeed one of the “rising 10” most promising companies according to that Homeland Security magazine in the Spring of 2008 — interestingly enough, a competitor that I really wish was public, General Atomics[9], was on that list the prior year (their main business focus is in nuclear energy, but they also make the Predator, which in some ways competes with Aerovironment’s Raven, Puma, Wasp, Dragon Eye, etc.)

And January 8 would have been a rough time to pick this stock, assuming they still hold it (which seems a safe assumption — the ad was emailed out as recently as yesterday). AVAV at the time was priced around $37, and climbed quickly to $41 before earnings and investor sentiment crushed the stock back down to the $20s. It’s now trading around $27.

Aerovironment has also been a favorite of investors and the investment pundits for quite some time — as have most of the “rising 10” or any other list of growing or “hot” homeland security and defense contractors, including iRobot and L-1 Identity Solutions[10]. I actually drones[11]-and-cramer.html">wrote briefly about AVAV back in the early days of Stock Gumshoe, more than two years ago, following up on a teaser ad from Taipan[12] … the “hot” names never really die, and this one has been hot indeed — for a while it was one of the top few performers on the Gumshoe tracking spreadsheets, especially last Fall and Winter, when the stock was climbing when almost everything else collapsed.

Unfortunately, investors in AVAV earlier this year found that when you combine high expectations and a pricey valuation and a big earnings miss, you get the same thing as you do when you combine a toddler, a tricycle, and a set of stairs — so wear your helmet.

AVAV’s big business is in unmanned drone aircraft, the Raven, Puma, etc. etc. They have a pretty broad product lineup now — different capabilities and altitudes, different weights and sizes, ability to land on water[13], most of the stuff you’d kind of guess that folks had been working on for unmanned reconaissance aircraft. And from what little I know, military folks around the world are still awful happy to use these instead of sending people (and really expensive aircraft) into harm’s way, especially for things like surveillance and intelligence gathering.

Their other business, the more “green” stuff that isn’t quite as lucrative, currently, includes some cool stuff that you may have heard of — the company was founded by the late human-powered flight (and glider) pioneer Paul MacCready, and well before the unmanned drones that now make them a fortune they were known for the Gossamer Condor and the Gossamer Albatross, record-setting human powered airplanes (you can see both at the Smithsonian Air and Space Museums if you’re ever in my fair city), and for the solar[14]-powered planes the Gossamer Penguin and Pathfinder, which led the way to defense work that I assume morphed into the unmanned vehicle innovations.

Along the way, they also worked on the GM Sunraycer, the solar-powered car, and at developing both power generation and recharging technologies — including some wind turbines that you can just plunk down on the roofs of buildings, and the PosiCharge system, a rapid recharging technology that’s apparently used to recharge industrial electric vehicles and may be a promising technology for the coming (someday) fleet of electric cars. I have no idea whether or not the technology they have in these areas is leading the pack or not, but it sure looks cool (you can see it on their website here[15]).

If you like a nice big dose of military and defense contractor, with a chaser of earth-friendly power goodies, then perhaps this will be your happy juice. I’d imagine that their profitability in the next few years will continue to ride on the number of unmanned aerial vehicles they are able to sell. This is a competitive environment, with other offerings from both General Atomics (with their Predator), which seems like the other very large player, and from Textron, Boeing, and foreign defense firms (Israel[16] Aircraft Industries, for one).

It seems to me that AVAV is the leader in the small and light reconnaissance and sensing planes, but I don’t think they make the bigger unmanned aircraft that carry weapons or perform more direct war-fighting tasks — but that’s just my impression after some very superficial research, so I’d urge you to learn them up on your own if you’re interested in these shares (and of course, share with us).

There were a couple other terse hints about other companies teased in the letter, too — let’s see if I can get you started on those:

“Brendan has his eye on other rising Green companies, too–like one that holds license rights to several key technologies used in geothermal[17] and other heat transfer-based power generation (still an almost untapped resource in this country) … a manufacturer of thin-film solar panels that can be rolled up like a tarp … an innovative company that’s making big profits turning ordinary garbage into a sought-after commodity … and many others.”

I’ll throw out Raser as the likely solution for the geothermal one, and the “garbage into commodity” could be Bluefire Ethanol or Covanta, I suppose (wild guesses), and flexible thin film solar could also be a lot of different companies, but among the publicly traded ones a solid guess is Energy Conversion Devices. Feel free to throw out your own guesses on any of those if you like, or any comments about Aerovironment or their competitors.

And if you’ve ever subscribed to any of the Cabot newsletters, please click here to share your opinion with a brief review[18]. Thanks!

Source URL: https://www.stockgumshoe.com/reviews/green-investor/a-pioneer-in-creating-highly-efficient-vehicles-from-cabot/