A Dirt-Cheap Alternative-Energy Play

Alternative energy is all the rage right now. As weaning ourselves off foreign oil becomes a bigger political and practical game-changer, companies that can act as catalysts have seen their market caps rise substantially in the past few years.

That doesn't mean, however, that there still aren't dirt-cheap stocks out there for you to gobble up before the market wakes up to their value. My pick for you today, American Superconductor (Nasdaq: AMSC  ) , is a perfect example of a value stock in a growing industry.

How things stack up
There are several Fool favorites when it comes to energy plays. To show you how good of a deal American Superconductor is, I've included a graph with:

  • A short description of what each company -- American Superconductor and some of its industry peers -- does.
  • Their PEG ratios. In theory, companies with ratios above 1 are overvalued; those less than 1 are undervalued.
  • Their price-to-book values. Again, a higher number suggests that the stock is overvalued, while a lower one indicates the opposite.

Company

What It Does

PEG Ratio

Price/Book

American Superconductor Involved in wind-energy technology as well as high-temperature superconductor wires 0.37 0.86
National Grid (NYSE: NGG  ) Regulated energy provider in the U.S. and U.K. N/A 2.33
EnerNOC (Nasdaq: ENOC  ) Developer and provider of clean and intelligent power solutions 1.88 1.8
Jinpan International (Nasdaq: JST  ) Manufactures cast-resin transformers for Chinese power companies 0.3 1.14
Power-One (Nasdaq: PWER  ) Makes power management products for the communications, tech, and renewable-energy markets 0.47 2.53

Source: Yahoo! Finance.

Although several of these companies look like a great buy based on their potential future earnings (hat's the PEG ratio), only American Superconductor is trading below its book value.

So why is it down?
For all this talk that American Superconductor is undervalued, you still have reason to be wary, dear Fool. Consider:

  • American Superconductor announced in early April that its biggest customer, Sinovel, was refusing contracted shipments . Sinovel makes up a whopping 75% of American Superconductor's business.
  • In early June, American Superconductor said it will delay the filing of their annual report, which is never a positive sign.
  • Amid all this bad news, American Superconductor is spending precious cash on the acquisition of Finnish competitor The Switch.

The market dislikes uncertainty, and this level of uncertainty easily explains American Superconductor's 65% fall from grace since early April.

Foolish takeaway
Many observers believe the market has overshot in undervaluing American Superconductor. Insiders have been buying lately, my Foolish colleague Seth Jayson has pointed out why we should expect big things from AMSC, and Travis Hoium has given his reasons for why he's doubling down on AMSC. If this story interests you, I encourage you to add AMSC to your Watchlist.

Fool contributor Brian Stoffelowns no shares of any of the companies mentioned. The Motley Fool owns shares of Power-One, Jinpan International, and EnerNOC. Motley Fool newsletter services have recommended buying shares of National Grid, EnerNOC, and Jinpan International. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 01, 2011, at 2:49 PM, picador3 wrote:

    How can you calculate the peg ratio for American Superconductor, a company that has apparently misstated its earnings for the past year and is currently unable to get an auditor's letter for its Fiscal 2011 annual report?

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