Some of the signatories on the letter included employees from Google, Applied materials, Fuel Cell Energy, GE Energy, Evergreen Solar, Kyocera Solar, Sharp Solar, SunPower.

Read the letter here on ACORE’s website.

The market initially reacted positively with Kaydon gaining as much as 8% but the stock gave up all of its gains and closed the day in red.  The stock is basically sitting at where it was before the earnings report on Thursday.  I am looking at this week to see how the stock reacts in the short term. Kaydon has been severely punished since the the start of the year with the overall market and in particular the alternative energy sector.

The long term story continues to develop nicely for Kaydon and it remains a compelling long term opportunity.

The near term downside remains if the Renewable Energy tax credits are not extended by Congress beyond the year 2008. However, the wind energy demand and record backlog has the company sitting pretty despite what happens with the current law.

Nevertheless, the alternative energy sector could use a boost by congress with the extension of tax credits beyond 2008.

Both Friedman,Billings,Ramsey &Co and Robert W. Baird came out with ‘Outperform’ ratings on Friday.  Deutsche Securities already has a ‘Buy’ rating on the stock from January.  The price targets range from $57 to $58.

S&P meanwhile has a ‘Sell’ rating and $40 price target.

I continue to remain bullish on the wind sector.  Unites States is now the second largest wind market in the world after Germany.  A recent article from NYT continues to paint a bright picture for the wind sector.

If you are optimistic about the overall market then you should put Kaydon on your watchlist.

Full Disclosure: I am long Kaydon.

Kaydon (NYSE: KDN)

I sold my Call Options on Friday before earnings since I had a nice profit and didn’t know what to expect with the earnings call.  It was just a gut call since I have only held and followed this company for a short time.  I would prefer to buy some long term calls again specially if it goes below $50 mark. 

Before we get into the third quarter highlights you should read my previous article on Kaydon and/or Hilary Kramer’s article on Kaydon.  This is an unknown stock so this will give you detailed information on what this company is all about.  You can also look at the third quarter numbers here. 

Now here’s why Kaydon is attractive as a Wind Energy Play:

• Kaydon announced the acquisition of Avon Bearings for $55 million in cash strengthening their Wind Energy segment. 
• $115 million run rate for wind by the end of FY’08
• Continued expansion of its Wind Energy business. 
• CEO James O’Leary:  “We are highly confident by the end of this year, we are going to have two of the major top tier wind energy people”
• “Our capacity expansion is proceeding. We’ll provide Kaydon with substantially increased manufacturing capacity to satisfy the rapidly growing wind turbine demand for advanced custom specialty bearing assemblies, up to 11 feet in diameter for new, large wind turbines, up to three megawatts of capacity. This is supplemented by the Avon acquisition which we believe gives us the capability to make the largest bearings in North America” (Seeking Alpha Conference call Transcript)
• “During the quarter, we had record third quarter order entry of $117.3 million up almost 26% year-over-year, leaving us with a record quarter end backlog of $211 million going into the fourth quarter” (Seeking Alpha Conference call Transcript)

Following are some excerpts from Merrill Lynch’s Report on Wind turbine manufacturers (pdf):

Bearings

As with gearboxes, severe shortages have occurred in this industry over the last couple of years and one of the reasons appears to be the increase in activity across all heavy industry in general. For most bearing manufacturers, wind still represents only a small part of their business. Two of the largest suppliers of bearings to the wind industry, SKF and FAG are both increasing production but as with gearboxes it will be sometime before supply matches demand. The shortage appears to be particularly acute on large bearings and the delivery time from both SKF and FAG for customers without a framework agreement is over 16 months. In increasing turbine sizes, one of the most problematic areas has been failures in bearings used in gearboxes. As a result manufacturers have been reluctant to use new suppliers.

Over 80% of the profit warnings in the wind turbine manufacturing industry have come from gearbox issues, primarily malfunctioning bearings but also unforeseen issues with various gearbox designs

Wind Energy

Many new power plants in the post 2010 time period will inevitably be
wind farms as the expectation of high carbon prices coupled with high oil
prices are dis-incentivising power companies from building fossil fuel
fired power plants. In addition solar energy remains relatively small
scale. The world’s largest solar power plant is a 40MW project
comprising one million solar panels, by contrast the world’s largest wind
power plant is almost 20 times the size at 780MW. Solar is thus far less
suitable for large scale roll-out of renewable energy capacity.

IPO pipeline mainly Chinese Solar but large utilities betting on wind: The IPO pipeline has been primarily solar (and predominantly Chinese solar companies), but asset based financings in the sector have been heavily skewed to wind (see Chart 35 and Chart 36) and we expect to see this trend maintained going forward).

————

As I side note, reading this Merrill Lynch report makes me want to revisit Zoltek (ZOLT).  I haven’t been following it lately but made a small profit on it a few months ago.  Sold it too quickly. 

* No position in Kaydon (KDN) or Zoltek (ZOLT) at this time.  Could change anytime without notice

New York Times has an excellent piece on this very topic featured on its front page titled, “As China Roars, Pollution reaches Deadly Extremes“.  It’s well worth reading but I’ll highlight some of the key points below: (It won’t help the Chinese readers since not only New York Times is blocked but so is my own site FinancialNirvana.com).  You can check to see if a site is blocked in China by using the GreatFirewallofChina.com)

• Pollution has made cancer China’s leading cause of death.
• Only 1 percent of the country’s 560 million city dwellers breathe air considered safe by the European Union.
• Sulfur dioxide and nitrogen oxides spewed by China’s coal-fired power plants fall as acid rain on Seoul, South Korea, and Tokyo.
• Much of the particulate pollution over Los Angeles originates in China, according to the Journal of Geophysical Research.
• In his equivalent of a State of the Union address this year, Prime Minister Wen Jiabao made 48 references to “environment,” “pollution” or “environmental protection.”
• Newest coal-fired power plants and industrial furnaces operate inefficiently and use pollution controls considered inadequate in the West.
• Chinese industry uses 4 to 10 times more water per unit of production than the average in industrialized nations.
• The Chinese leadership has banned publication of Pollution data on the subject for fear of inciting social unrest.
• World Bank study:  Outdoor Pollution causing 350,000 to 400,000 premature deaths a year and Indoor Pollution’s causing 300,000 deaths a year. 
• China now seems likely to need as much energy in 2010 as it thought it would need in 2020 under the most pessimistic assumptions.
• Chinese buildings rarely have thermal insulation.  The building in China require twice as much energy to heat and cool as those in similar climates in the United States and Europe. 

This is alarming stuff. 

There are a lot of opportunities for a number of companies to help China (if they elect to) at least lower their pollution. 

1.  Fuel Tech (Nasdaq: FTEK) – To me Fuel Tech is the first company that comes to mind since they are in the pollution control business and have had some successfully contract wins there.  Fuel Tech’s outlook and second quarter numbers were disappointing the stock has held up pretty well.  There is no doubt that the Fuel Tech has a lot of opportunity in United States and China but it’s a little bit speculative.  Any positive news coming out of China could propel this stock in a matter of hours.  It would be interesting to see how the stock has any significant move based on this New York Times article.

There is also ADA-ES company (ADES) but I am not sure they benefit from this because the last time I did some research on this company, I didn’t see any business coming out of China. 

2.  Suntech Power (STP) or any one of the major Chinese Solar companies:  Don’t get me wrong, we won’t see China go on a massive domestic Solar boom any time soon but they might just do something before the Olympics. What I am trying to say is that there might be some significant domestic contract wins for the Chinese Solar companies before the Olympics but they will be mainly for show.  Putting a few Solar panels won’t cure any pollution issues but will be a good public relations move.  Beijing will definitely try to show that they are committed to the environmental cause to all the visitors and the media attention it gets during the Olympics.  Suntech Power has already won the contract to provide a 130KW solar energy system for Beijing’s Birds Nest Stadium, the main stadium for the 2008 Beijing Olympic Games.  Which Chinese Solar company will get further contracts?  I don’t know because it will depend on who is the most politically connected?  However, with the little knowledge I have about the local politics I would have to say it would be Suntech Power, since it’s the largest of them all and it did win the contract for the main Olympic Stadium. 

3.  Wind Energy Stocks:  Could American Superconductor (AMSC) or Zoltek (ZOLT) (indirectly) see any new contracts coming from China anytime soon? 

3.  General Electric (GE):  GE definitely benefits through a number of ways but I am not sure if that will move it’s stock.

4.  A water purification company:  I don’t follow this sector and will have to do further research.  Any ideas would be welcomed. 

5.  The article mentioned that most of the new coal plants use old turbines rather then the more efficient combined-cycle turbines.  Who makes these more efficient turbines? 

6.  Thermal Insulation companies?

There are a number of ways to play this and as you can see I am not aware of all of them.  So any ideas would be welcomed. 

————————————————-

* Full Disclosure: At the time of this writing I am Long Zoltec (ZOLT) call options.  I could go long or short on any of the stocks mentioned in this article without notice.

Image Credit: cdc.gov (Smog in Beijing – Dr. Edwin P. Ewing, Jr.)

Company

Kaydon, based in Michigan, designs and manufactures custom engineered products that are used in robotics, medical, aerospace, alternative-energy, defense, security, electronic, material handling, construction, and other industrial applications.  More specifically, Kaydon provides Friction control products, Motion control products, Velocity control products and sealing products. 

Just by reading that much you can tell that the company has exposure to some of the best and most promising sectors such as: Alternative Energy (Wind), Aerospace, Medical, Defense, and Security among others.  This also makes for a diversified source of revenues. 

Source:  Kaydon.com – Key Banc Presentation

Statistics

• Stock Price (8/14/2007):  $52.71
• Market Cap:  1.49 Billion
• Dividend:  .60 (1.10%) (Recently Raised)
• P/E: 23.20
• Forward P/E: 18.96
• Cash: $374 million

Analyst Coverage

• KeyBanc Capital has an ‘Aggressive Buy’ rating on the stock with a price target of $66
• Friedman Billings has an ‘Outperform’ rating on the stock with a price target of $63
• Barrington Research has an ‘Outperform’ rating on the stock with a price target of $60

I recently found out about the company when it was mentioned positively in Barrons.  What interested me the most about it was the exposure to Wind Energy.  I follow Alternative Energy stocks very closely and while there are a number of Solar Stocks out there, the number of Wind stocks are all but a couple.  (I cannot count General Electric (GE) since its such a large conglomerate). 

Here’s what KeyBanc had to say in one of its recent research note: (via NewRatings.com)

Company’s new CEO is likely to focus on closing accretive acquisitions. Kaydon has about $400 million in cash, which can be used to make acquisitions that would result in significant EPS accretion, the analysts say. in a position to make acquisitions going ahead, are likely to lend upside to the company’s share price. The company’s share of the domestic wind power market could expand to 75% by 2010, driven by the company’s aggressive capacity expansion programme and an estimated 15%-25% industry growth rate over the next several years. 

Also, following is from Barron’s:  (via SeekingAlpha.com)

Friedman, Billings, Ramsey analyst Ned Armstrong says revenue from wind-turbine parts could easily jump five-fold, from a present $20 million to $100M.  Keybanc Capital Markets’ Steve Barger thinks O’Leary will buy a European wind-power manufacturer to increase its current 30% non-domestic sales. 

Kaydon recently announced it has approved additional $25 million capital expansion to supply the wind energy industry.  The quarter ending backlog equaled a record $201.5 million of which $60 million is for Wind. 

This seems like a good way to play the alternative energy sector for investors who don’t like the speculative and volatile alternative energy stocks.  The company has solid fundamentals, diversified revenue stream, and strong growth prospects ahead with Wind Energy.  This is a solid company without the wind exposure but its the wind exposure that makes it a definite buy for me.

* I own Call Options of Kaydon (KDN)

Of couse, the Solar Stocks don’t ever waste an opportunity to advance and they didn’t waste today’s opportunity either.  Wind Stocks weren’t far behind. 

Solar Stocks: 

• Now its gotta suck if you own MEMC Electronics (NYSE: WFR).  I am actually surprised that it didn’t go up today.  It seems like WFR is stuck in the high 50s – low 60s range. 
• Suntech Power (NYSE: STP) made another 52-week high today but let’s see if it continues after the company reports Q2 earnings tomorrow. 
• Just when you thought the momentum was all but gone in First Solar (Nasdaq: FSLR) it comes back strong in a matter of couple of days.  Nothing it seems like can stop this stock from appreciating.  The sky high stock price, valuation, the large amount of insider selling, secondary, the 2Q results and even the NASD Inquiry.

On August 1, 2007 we received a letter from the NASD Market Regulation Department (the “NASD”) requesting certain information in connection with the NASD’s review of trading in our common stock surrounding our July 9, 2007 announcement of having entered into new long-term supply contracts. Among other things, the NASD requested information about all persons who possessed information about the new long-term supply contracts prior to our public disclosure, a chronology of all significant events leading to the execution of the new long-term supply contracts and a description of our procedures to ensure the confidentiality of material, non-public information prior to its public dissemination. The letter states that the inquiry should not be construed as an indication that the NASD has determined that any violations of the NASD Conduct Rules or the federal securities laws have occurred. We are cooperating with the NASD and are not aware of any inappropriate disclosure or improper trading.

At this point I am just waiting on the secondary to be priced. 

Wind Stocks:

• American Superconductor (Nasdaq: AMSC) made it’s 52-week high today.  However, the company reports 1Q number tomorrow morning.  It would be interesting to see how this fares. 
• I picked up Kaydon Inc. (NYSE: KDN) recently after seeing it mentioned on Barrons a few week ago.  Did some research on it and really liked it.  I was looking for a Wind Energy related stock for a while but didn’t know about Kaydon until Barron’s mentioned it.  Look into it. 

American Superconductor (Nasdaq: AMSC) and Zoltek (Nasdaq: ZOLT) have a great future ahead of them but I don’t think this is the right entry point. 

There is shorting opportunity available in some of the Solar and Wind stocks.  However, remember there will be long opportunities as well once they drift down.  Also, I would only recommend using PUT Options to Short.  

* Full Disclosure:  I own PUT and CALL Options of First Solar (FSLR) (lot more PUTS) and I own CALL Options of Kaydon (KDN)

Of course they are going to take advantage of this and offer more stock.  The news release date is in parenthesis

Solar Energy Stocks

• Sunpower (Nasdaq: SPWR):  Solar panel maker SunPower Corp. plans a public offering of about 2.5 million class A shares and $175 million in senior debt. (July 19th, 2007).
• Trina Solar (NYSE: TSL):  Priced a follow-on public offering of about 5.4 million American depositary shares at $45 each.  The stock fell to low 40’s the day news was announced but is now trading in the low 60’s.  I think about buying Trina Solar everytime it falls but never pull the trigger and then it takes off (June 1st, 2007)
• First Solar (Nasdaq: FSLR):  Filed to raise about $1 billion in a stock offering. The company plans to offer 9.65 million shares in the stock offering.  As William Trent pointed out the price fell far less then expected.  I couldn’t agree with him more.  Of course, I am the fool who got burned shorting First Solar.  For the last few weeks or so I have made up some of my losses by buying Call Options but still in red overall.  Right now I only own Put Options.  This could still shoot up any day so I might buy Call options in next few days to hedge my short position.  Just an incredible run so far for First Solar but sooner or later is had to end.  Doesn’t it?  On a side note, look at how much money First Solar’s CEO has made so far.  (July 20th, 2007)
• Evergreen Solar (Nasdaq: ESLR):  Evergreen Solar Offering of 15 Million Shares Priced at $8.25.  The company expects proceeds of about $117.4 million, which will be used on manufacturing expansion, on raw materials and as working capital.  (May 24th)

Wind Energy Stocks

• American Semiconductor (Nasdaq: AMSC):  Offering 4.7 million shares  priced at $21.25 a share.  I owned options on AMSC a few months ago and sold them for over 100% gains.  Could have made much more if I would have held on.  (July 20th, 2007)

Can’t blame these companies to take advantage of these booming times.  The effect on their stock price seems negligible after the news and in most cases are trading higher now.  So who’s next in line for a Stock offering?

* I own Put Options of FSLR and might buy some calls in the next few days.  I might also buy Put or Calls on any of these companies in the coming days.

China is about to take over the top spot in world as far as emitting greenhouse gases is concerned. It is estimated that China will take over the top spot either by end of this year or by 2008.

According to the latest statistics, China’s consumption of fossil fuels rose in 2006 by 9.3 percent. The growth in emissions is simply stunning. In 2001, greenhouse gas emissions were only 42% of U.S. levels but in 2006 the level had soared to 97% of U.S levels. However, per capita emissions are far below that of United States and other industrialized countries.

China does have a leading company in the field of Alternative Energy. Suntech Power (NYSE: STP) is not just a low cost manufacturer of Solar Panels and cells but also does extensive research in the field of Solar energy. I expect the Chinese domestic market to grow in the coming years for Chinese solar cell/panel manufacturer’s such as Suntech Power (NYSE: STP), Solarfun (Nasdaq: SOLF) and Trina Solar (NYSE: TSL). China has set a target of producing 16% of its energy needs via renewable energy sources by 2020.

With the developed world already providing support for alternative energy, what we need next is developing countries such as China and India to start doing the same. Both these countries have leading alternative energy companies to show them the way. China has Suntech and India has Suzlon Energy (Wind).

Source: SFGate

Disclosure: I am long STP

Here’s my list (in no particular order): 

• Suntech Power (NYSE: STP):  Suntech Power has taken a major beatdown in the last three days and I am still not convinced if the beating is over.  I am still comfortably up in my position and actually bought a call option on Tuesday as well.  I don’t see anything fundamentally wrong with the company and expect it to recover once the market settles down. 
• FuelTech (Nasdaq: FTEK):  My Fuel Tech position has gone from a nice profit to a small loss in the last three days.  The company has won some nice contracts from the Chinese government due to their preparation for the Beijing Olympics.  I still see tremendous upside for this company.  Hoping to see a bounce before Q4 earnings are announced next week on Tuesday. 
• American Superconductor (Nasdaq: AMSC): This company has been on a nice run the last few weeks.  Being one of the few pure play Wind Energy stock also helps.  I am already up more than 100% on my Jan 08 call options which I am planning to hold for now.  One of the few stocks that has been on a uptrend that last three days.  

Click here to go to the original article

* Full Disclosure: I am long STP, FTEK, UA, AMSC.  I don’t have positions in BA, HDB, IBN, INFY or SIRF.

• Crude Oil ended the week up 6.50% after similar gains last week.  
• First Solar Inc. (Nasdaq: FSLR) ended the week up 7% despite declining by 4.5% on Friday.  I shorted First Solar in the low 30’s and think the stock is overprices.  However, I am very nervous about First Solar.  Estate of John T. Walton owns about 82% of the company and with Walmart’s ambitious plan to go Solar, I think it’s very likely that First Solar will be involved in some way.  Unless a Walmart (NYSE: WMT) contract is announced I don’t see why First Solar wouldn’t go lower from here. 
• MEMC Electronics (NYSE: WFR) is the another stock I am currently shorting.  After a huge post earnings run-up last week of 15.18% the stock didn’t go anywhere this week.  The stock ended the week up only 0.82% so this week will be the one to look for major movement either way.
• Suntech Power (NYSE: STP) had a poor week after a great start.  Suntech Power gave a mid quarter update to shareholders and it didn’t seem like the company did their homework with the MSK acquisition.  Suntech cut the production output and revenue for MSK by half for 4Q 2006. MSK’s production will be moved from Japan to China for obvious cost savings.  I only see this as a short term issue until MSK is fully integrated with Suntech Power. 
• Sunpower Corp. (Nasdaq: SPWR) announced the pricing of its public offering of $175 million aggregate principal amount of 1.25% senior convertible debentures due 2027. SunPower also granted the underwriters of such offering an option to purchase up to an additional $25 million aggregate principal amount of the debentures.
• Canadian Solar (Nasdaq: CSIQ) finally showed some signs of life as the stock ended the week up about 18%. 
• Trina Solar (NYSE: TSL) got upgraded to ‘Outperform’ by Cowen & Co as the stock moved another up 5% after gaining 31% last week.  Trina Solar also signed a 6 year Polysilicon supply contract with Wacker Polysilicon, division of Wacker Chemie AG. 
• Solarfun Power Holdings (Nasdaq: SOLF) got upgraded to ‘Sector Outperform‘ by CIBC World Mkts. 
• I sold my Evergreen Solar (Nasdaq: ESLR) stake last week for a quick gain.  I don’t consider Evergreen Solar as a core Solar holding such as Suntech Power so I don’t mind trading this stock. 

* I am long STP and short FSLR and WFR.  I may buy stocks listed in this article in the next three days.