market folly

You may have noticed the slight increase in talk about green technology/clean energy. Ok, sorry that was somewhat sarcastic. This stuff is everywhere in the media. Don't get me wrong I'm all for it, but it's getting borderline ridiculous, tons of hype. One of the clean alternative energies I think will take off is Wind power. And, unfortunately for us, the media is on to this as well and they are hyping every name out there (especially that damn Cramer). But, it looks as if I've found a slight backdoor wind play that could also serve as a defense play in your portfolio.

Primarily, Aerovironment (AVAV) is a producer of unmanned air systems/technology, ie: Armed Forces. But, they also are into "efficient electric energy technologies," or so their website says. They actually seem to be diversified across numerous industries here in terms of energy. But, be clear, they're a defense company. Taken from their site (http://www.aerovironment.com/):

"Efficient electric energy systems represent the foundation upon which AV's key developments have been built. In human powered aircraft, unmanned aircraft, solar, electric and hybrid vehicles, high efficiency motors and fast charge products, our innovative electric energy technologies enable new levels of performance and efficiency, resulting in category-creating businesses and solutions to seemingly impossible project objectives. Customers such as the US Department of Energy, NASA, Boeing, Lockheed Martin and General Motors have relied on us to provide these solutions in a timely and cost effective manner."

The main thing that got me interested though, was their Architectural Wind segment. Basically, they've constructed these small modular wind turbines that latch onto existing architecture (skyscrapers, tall buildings in general) and then start cranking. It makes perfect sense if you think about it. They don't need huge towers because they're already on the roof of a damn skyscraper. Plus, its friggin windy at the top of these buildings. They aren't giant monstrosities and you can assemble a whole mini 'farm' on top of the building. Here's a picture of what they look like.


I can see growth for this segment of their business seeing as there are tons of skyscrapers not only in America, but worldwide. If everyone really gets behind the wind movement, sales of these could really pick up. The only obvious problem with this is eventually you run out of skyscrapers to put these on. But, that's still a ways down the road before they reach saturation. And, from the looks of things, this company is an innovator and I'm sure they'll evolve with the clean energy trends. Click here to go to the wind specific section of their site. I'd actually recommend poking around the whole site if you're interested, because there's a ton of information about what they do. I would put it on here but I'd basically be copying and pasting their entire site.

They are also involved in power processing, integrated power systems, and the electric energy segment I mentioned earlier. These guys look to be real innovators and I'm definitely intrigued by what they've got to offer. I'd almost consider this to be a hybrid defense/clean energy play, except for the fact that the extraordinary majority of their revenue comes from their unmanned aircraft segment. But, the fact that they are seeing this energy trend and embracing it is encouraging. The main thing though is that this segment of their business is tiny and just really getting off the ground. If they can grow the segment, then this could get interesting.

Taking a quick obligatory look at the financials, AVAV is moderately priced at 25 times trailing earnings and 22 times forward and have a market cap of $500 million. Their price to sales of 2.58 comes in well under 5, indicating they're undervalued. They have operating margins of 12% (decent, but nothing spectacular) and return on equity of 14% (ok I can dig that for a primarily defense company). What really caught my eye is that they've got $115 million in cash and zero debt. I thought a company as research intensive as this would have tons of debt. But, to my surprise, they have no debt. The CurrentRatio comes in at just over 7, which is the highest I've seen in a while and quite bullish. So far, so good. Now I'll have to really dig deep to see what this company is all about. But, I just wanted to get it on everyone's radar screens. No position as of now; I want to continue to monitor the situation for a quarter or two. They are definitely innovators and have been slowly building up their alternative energy solutions segment up. But, for now, they're still mainly a defense company. Just thought it was interesting.