Carbon fiber is a compound used for applications that demand a high strength-to-weight ratio and rigidity. The material was previously found only in high-cost applications, but prices have declined over the years to the point where carbon fiber is currently commonly used in consumer products, such as laptops, tripods, fishing rods, tent poles, racquet frames, bicycles, sporting equipment, golf clubs, and motorcycles.
Carbon fiber is also applied in the commercial aerospace, automotive, infrastructure, and marine sectors, along with applications used in offshore drilling, energy storage, and wind turbines. I see good buying opportunities in the aerospace sector. (Read “Four Aerospace Stocks Riding Economic Renewal.”)
The global carbon fiber market is estimated to grow 17% annually over the next five years to around 118,600 tons, with a market value of about $7.3 billion by 2017, according to “The Future of Carbon Fiber to 2017” report produced by Smithers Apex. From 2012 to 2020, the annual growth for carbon fiber-reinforced plastics is estimated to be 16%. These metrics make carbon fiber plays an intriguing buying opportunity.
A potential buying opportunity to play the carbon fiber market for aggressive investors is small-cap special situations pick Zoltek Companies, Inc. (NASDAQ/ZOLT), which appears attractive, given it is well down from its 52-week high of $15.01 on February 6, 2012. As well, at the current price level, the stock represents an above-average risk-to-reward buying opportunity. Note that is not a buy recommendation, but is simply an example of what’s available in the carbon fiber market.
Zoltek has been around since 1975 and is the largest seller of carbon fiber, for the low-cost end for commercial use, according to the company. The company’s carbon fiber is sold under the “Panex” brand. Zoltek also develops a stabilized and oxidized acrylic fiber that is used in flame- and heat-resistant applications sold under the “Pyron” brand. In addition, Zoltek Automotive was formed in April 2010 to develop carbon fiber for the automotive sector.
Global markets have been developed in Asia, 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 nearly $152 million in fiscal 2011.
A plus is that the sales picture is expected to improve. In fiscal 2012, sales are estimated to rise 26.4% to an estimated $192 million—making Zoltek a good buying opportunity.
On the earnings side, Zoltek only turned a profit in fiscal 2008; otherwise, it has been losses. The plus is that the loss fell in fiscal 2011. Three analysts following the company estimate that Zoltek will turn a profit of $0.71 per diluted share in fiscal 2012.
There is a large short position of 22.7% of the float as of July 31, or over six million shares. A stock market rally could drive up short covering and generate a good buying opportunity.
If the carbon fiber grows as expected, Zoltek could see a corresponding rise in its share price and represent a potential speculative buying opportunity.