Sometimes the market beats down a stock that seems to have everything going for it. Today I'm looking at American Superconductor (Nasdaq: AMSC ) , which lost 30.1% of its value in 2010 and is down 7.2% to start 2011. But there are plenty of reasons to be excited about this stock.
1. Chinese wind is where it's at
2010 was a terrible year for most wind turbine manufacturers. Vestas Wind Systems and GE (NYSE: GE ) Wind struggled throughout the year, and suppliers have struggled as Chinese manufacturers take market share. Broadwind Energy (Nasdaq: BWEN ) , which supplies towers and other components, saw sales fall 46.2% as U.S. installations dropped.
But American Superconductor's sales were up 38.3% over the last year on strong growth in China. Manufacturers such as A-Power Energy Generation Systems (Nasdaq: APWR ) are adding wind turbine capabilities, and although Sinovel is still a majority of AMSC's market, sales to other customers are ramping up. Just last week, China's third largest turbine manufacturer, Dongfang Turbine, made its first order of control systems for 3 MW and 5 MW turbines.
If I'm invested in the wind market, I want to bet on China's ever-growing presence in the sector. There are even some who think that rare earth mineral export restrictions from China are in place to help wind turbine manufacturers there. Whether that's the case, China's control over rare earth minerals is another reason to stick with China for wind investment.
2. Getting in on the ground floor of utility scale solar inverters
American Superconductor got in on the ground floor in the Chinese wind market and is trying to do the same in utility scale solar. For now the Sarnia development in Canada holds the crown for largest solar installation, but the industry is moving to bigger projects very quickly. The Interior Department has identified 14 projects for a "fast track" that would account for a total of 6 GW of power if built as planned. So the opportunity is huge if the company can gain a foothold.
SolarTie is American Superconductor's solution for utility scale solar, and the company has made a big commitment in this area. But there's lots of competition with Satcon Technology (Nasdaq: SATC ) and Power-One (Nasdaq: PWER ) having established presence. I look at the solar inverter business as a huge upside with very little downside for American Superconductor. If it can build a presence like it did with wind, it would be like winning the lottery for investors.
3. Energy prices are rising
The recession and falling traditional energy prices put a dent in wind and solar momentum over the last two years. But rising energy costs should change that dynamic around the world. Wind and solar costs are both falling quickly, and even without considering subsidies they are becoming more economically viable by the day.
Whether solar or wind power (or both) benefit from a change in political will for more domestic energy sources, American Superconductor will be there to benefit.
4. Value and growth
We've covered the great growth prospects American Superconductor has in front of it, but with any stock we want to get value in what we pay for. Since swinging into profitability just two years ago the company has made steady progress and reported $0.33 per share in earnings last quarter. The company's trailing P/E ratio of 30.4 may look a little pricey, but using analysts' expectations for the next year they see a forward P/E of 16.0. And AMSC has beaten estimates the last four quarters, so there's a decent likelihood those expectations are also low.
The Foolish bottom line
I've covered American Superconductor's great growth, strong strategic position in both wind and solar, and shown that the stock provides reasonable value. I didn't even get around to the superconductor product for which the company is named. The Amperium Wire the company sells is just getting started, but it provides another product with outstanding upside potential for the company.
What do you think of American Superconductor? Let us know in the comments section below.
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