Power Your Portfolio With Vestas Wind Systems

Energy, Politics and Wall Street
           
The cost of energy in the United States has certainly been making the headlines recently. Energy has become one of the main topics in the current Presidential campaign. There has been lots of talk about “greedy” oil companies, “windfall profits” and “evil” oil speculators. As usual, politicians are just blowing hot air. It’s too bad that we can’t bottle all that hot air. It would probably power the nation for many years.

The politicians aren’t the only ones blowing a lot of hot air. There is plenty of hot air coming from Wall Street too. I swear that if I hear the term “commodity bubble” again on CNBC that I will toss my TV into the garbage. It is amusing however to hear these so-called “analysts” talk about markets – commodities – of which  they have little understanding. Investors would be advised to not listen to a word they say.

Think of it this way – it would be like CNBC talking to a person discussing Google and that person is a person who trades copper for a living. That person would not understand the workings of Google as a company. Similarly, most of the guests on CNBC are stock market people who do not understand the workings of  the commodities markets.

T Boone Pickens

Recently legendary oil man T. Boone Pickens put forth a plan to help solve the nation’s energy problems. His plan involved the use of wind power and natural gas powered vehicles. In Wall Street parlance, Mr. Pickens was “talking his book” as he does own wind power assets and has stakes in companies involved with natural gas powered vehicles.

Despite this, Mr. Pickens is correct that the US needs to use and develop multiple sources of energy and as soon as possible. The US needs to drill for more oil and natural gas and develop alternative energy sources such as nuclear, solar, and wind. 

Wind Power Around the Globe

One of the alternative sources of energy which is rapidly becoming economically viable is wind power. Wind power is a renewable, predictable and clean source of energy. According to the Global Wind Energy Council, the installed capacity of wind power globally increased by 27 per cent in 2007. Globally, wind power generation increased more than fivefold between 2000 and 2007.

Although wind produces about 1% of world-wide electricity use, it accounts for a sizable portion of electricity generation in some countries. This list of countries  include: Denmark(19%), Spain(9%), Portugal (9%), Ireland(6%), and Germany(6%).

The countries with the largest absolute amounts of installed wind power capacity include: Germany, United States, Spain, India, China, and Denmark. In recent years, the United States has added more wind energy to its grid than any other country. It is interesting to note that the largest wind energy state in the US is T. Boone Pickens home state of Texas.

Vestas Wind Systems

If an investor is looking to invest in this industry, a good place to start would be with the Danish company, Vestas Wind Systems.

The modern wind power industry began in 1979 with the production of wind turbines by Vestas Wind Systems. With a 23 per cent market share, Vestas today is the world’s leading supplier of wind energy solutions. Vestas develops, manufactures, and markets wind turbines that generate electricity. The company also installs the turbines and maintains the installations.

Vestas has installed more than 35,000 wind turbines in 63 countries on five continents. The company installs an average of one wind turbine every four hours. In fact, Vestas’ wind turbines generate more than 60 MWh of energy a year – enough electricity to supply millions of households.

The first turbines produced by Vestas in 1979 were small by today’s standards, with capacities of 20 to 30 Kw each. Over the past years, Vestas has improved the generator effect of their wind turbines by a factor of 100. Currently, the company’s largest wind turbines have a capacity of 3.0MW. It would take over 13,000 barrels of oil per year to match the Vestas V90-3.0MW wind turbine. Vestas’ flagship V90 turbine has become the industry benchmark in its class and a competitive advantage for Vestas.

Vestas expects that the present wind power share of about one per cent of global power consumption will grow to at least 10 per cent by 2020. The company expects that installed capacity for wind turbines will rise from 75,000 megawatts in 2006 to at least 1,000,000 megawatts 2020, which translates into annual growth of more than 20 per cent. 

Vestas is well positioned globally. The company is a major force in Europe and they also have a strong presence in emerging markets such as China. Vestas is introducing new capacity in China, which should come online in mid-2009. China is targeting installed capacity of 100,000 megawatts by 2020. This figure is roughly the equivalent of the total global capacity at the end of 2007.

Vestas is no stranger to the US market either. The company is investing heavily in the US after the Department of Energy signed a letter of intent in June to increase the proportion of energy generated by wind power to 20% by 2030. Vestas is building a new US plant to double its capacity for making turbine blades as well as the world’s largest turbine tower factory in Colorado.

Vestas Wind Systems shares

The company’s stock is easily accessible to US investors. Vestas has an ADR, which began trading in early 2007, on the pink sheets under the symbol VWDRY. The stock is very liquid for a pink sheet stock with an average daily volume in excess of 55,000 shares. The Vestas ADR has been as low as $28 this year and as high as $48. The stock is currently selling near $45, a rise of nearly 80% for 2008.

The stock price has been sustained by the company’s leadership position in the wind industry. In their latest earnings release, Vestas announced that its 2nd quarter net profit rose 27% to $96 million. The company said its order backlog rose jumped 67% to more than $10 billion, up more than two-thirds from a year earlier.

Vestas also reaffirmed its forecasts for 2008, saying that it expects margins to continue to improve and its market share to grow to 25%. The company further stated that the surge in fossil fuel prices have pushed upward the amount customers are willing to pay for wind turbines.  

The rising cost of energy should continue to drive demand for wind power for many years and Vestas Wind Systems should be one of the primary beneficiaries. This stock should be included in most investors portfolios.

Our recommendation: Buy shares of Vestas Wind Systems (VWDRY) ar or near $44.65.

Tony D’Altorio
Analyst, Wall Street Elite