Friday, June 8th, 2012
By George Leong, B.Comm. for Profit Confidential
With the raid influx of advanced technologies, we are seeing strong growth in the demand for carbon fiber, which makes this composite a buying opportunity. Carbon fiber is a compound used for applications that demand a high strength-to-weight ratio and rigidity.
Carbon fiber was previously beyond the means of the average consumer and used in specific high-end applications, but prices have declined over the years. Carbon fiber is now commonly applied in consumer products such as laptops, tripods, fishing rods, tent poles, racket frames, bicycles, sporting equipment, golf clubs, and motorcycles.
The commercial applications include aerospace, automotive, offshore drilling, infrastructure, marine, energy storage, and wind turbines. See why I like the aerospace sector and what companies are interesting in Four Aerospace Stocks Riding Economic Renewal.
In fact, the global carbon fiber market is estimated to grow annually at 17% over the next five years to around 118,600 tonnes, with a market value of about $7.3 billion by 2017, according to “The Future of Carbon Fiber to 2017” report by Smithers Apex. From 2012 to 2020, the annual growth for carbon fiber-reinforced plastics is estimated at 16%. The metrics make carbon fiber plays an intriguing buying opportunity.
A potential buying opportunity as a play on the carbon fiber market for aggressive investors is small-cap special situations play Zoltek Companies, Inc. (NASDAQ/ZOLT). This stock appears attractive given that it’s well down from its 52-week high of $15.01 on February 8, 2011. At the current price level, it represents an above-average risk-to-reward buying opportunity. Note that this is not a buy recommendation at this moment, but simply an idea to consider.
Chart courtesy of www.StockCharts.com
Founded in 1975, Zoltek is an applied technology and advanced materials company, with the objective of increasing the usage and demand for carbon fiber. The company’s carbon fiber is sold under the “Panex” brand. Zoltek believes it’s the largest seller of carbon fiber, namely at the low-cost end for commercial use.
The company also develops a stabilized and oxidized acrylic fiber that’s used in flame- and heat-resistant applications sold under the “Pyron” brand.
The company formed Zoltek Automotive in April 2010 to develop carbon fiber products into automotive applications.
Global markets have been developed in Asian countries, including China, India, Korea, and South America, with a focus on Brazil, which makes the stock a global buying opportunity.
Zoltek reported higher fiscal sales from fiscal 2003 to fiscal 2007 and in fiscal 2011. Sales increased from $41.8 million in fiscal 2002 to $151.7 million in fiscal 2011.
A plus is that the sales picture is expected to improve. In fiscal 2012, sales are estimated to rise 27.7% to an estimated $193.8 million—making Zoltek a good buying opportunity.
On the earnings side, Zoltek only turned a profit in fiscal 2008; otherwise, it has seen losses. The plus is that the loss fell in fiscal 2011. Three analysts following the company estimate that Zoltek will turn a profit of $0.67 per diluted share in fiscal 2012.
There is a large short position of 17.8% of the float as of May 15, 2012, or 4.89 million shares. A stock market rally in the stock could drive up short covering and make the stock a good buying opportunity.
Since May 13, 2010, there have been 20 insider stock purchases from officers and directors; this is bullish and indicates a good buying opportunity. The price paid ranged from $7.60 to $10.72. In August 2012, 103,000 shares were purchased by insiders at prices ranging from $7.60 to $8.20, which is just below the current market price.
If the carbon fiber grows as expected, Zoltek could see a corresponding rise in its share price, representing a potential buying opportunity.
|Total 2012 per share earnings for 30 stocks in the Dow Jones Industrial Average:||$900|
|Dow Jones Industrial Average Price/earnings multiple:||16.0|
|Dow Jones Industrial Average Dividend Yield:||2.5%|
|10-year U.S. Treasury Yield:||2.02%|
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