TPS Trade Alert – June 30, 2014
June 30, 2014
Recommendation:
Buy American Superconductor (NASDAQ: AMSC) up to $1.75 per share.
Trade Rationale:
Traditionally, micro cap stocks, such as the ones we recommend here, are focused on a narrow set of products or services. It makes sense. Smaller companies typically don’t have the resources to be involved in multiple market verticals.
On one hand, being focused on a single type of product or service carries more risk. A company isn’t diversifying their revenue streams in that case.
On the other hand, focusing on one area generally means the company is an expert in that area. And overall, there’s a massive market for niche players.
But what if you could have both benefits I just talked about?
What if there’s a company that is diversified into different businesses and is a niche player in each business?
Well, not only have we found one such company, but the company is also trading at dirt cheap prices.
Introducing American Superconductor (NASDAQ: AMSC).
AMSC develops technologies and solutions to meet demand for more efficient, cleaner energy. The company has two distinct units.
The Windtec Solutions division develops turbine electronic controls and systems, and develops services to reduce the cost of wind energy. The Gridtec Solutions unit provides engineering planning services and advanced grid systems for optimize network reliability, efficiency, and performance.
As I mentioned earlier, AMSC operates in two distinct, niche businesses. There are positives to both businesses.
Windtec’s turbine maximization is already being used in thousands of wind turbines around the world. As wind energy becomes more popular, more and more wind farms are going up. That presents an excellent upside opportunity.
Gridtec products help to maximize the transmission of energy into the grid. The company offers a “Resilient Electric Grid” product which increases capacity and reliability. In addition, AMSC offers high temperature superconductor wiring for the utility and defense industries, which outperforms and weighs less than copper wiring.
Windtec services a $3 billion market while Gridtec’s addressable market is $2 billion. Clearly, there’s plenty of room for upside. Moreover, the company is in litigation with Chinese company Sinovel, where it seeks over $1 billion in reparations.
Over the past year, AMSC’s revenues totaled around $84 million, with gross profit of $11 million. Basically, Windtec’s business grew while Gridtec lost money. However, that could easily change in 2014, especially with the aging US grid and potential US Navy contracts.
The company also has $43 million in cash and just $13 million in debt. Current assets are 1.7x current liabilities. Basically, AMSC has the cash to continue growing and expanding its business.
The bottom line is this…
American Superconductor is involved in two niche business that both have impressive growth potential. The company has plenty of cash to grow – and is certainly in no danger of becoming insolvent.
Finally, AMSC’s share price got clobbered over the last few years in part due to a legal conflict with Sinovel in China. But, it stands to gain a substantial amount from legal proceedings.
Despite the significant, long-term prospects for the company, AMSC is trading right at book value. With both divisions’ growth potential, the total business should be worth substantially more.
Grab your shares of AMSC while they’re trading at rock bottom prices.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | American Superconductor |
| Ticker: | AMSC |
| Recent Price: | $1.53 |
| Market Cap: | $122 million |
| Avg. Daily Volume: | 716,927 shares |
Chart:
Category: TPS Trade Alert
