3SOF

I know there are members of 3SOF who think that falling in love with shares is a dangerous business. Well I do it all the time and I am very faithful.

I happen to believe that a beautiful young girl normally grows up to be a gorgeous woman. Of course bad accidents can happen which badly mutilate the candidate of my desire in which case immediately divorce is the only option. Beauty is everything. (Cumuline and Luckyfish I am obviously only using the opposite sex as a metaphor  - no smite points please ).

So what is a beautiful stock? Well to attract my interest it has too be severely undervalued, have an excellent track record, a great outlook and a top-notch management team. It is obviously nice if they earn money for their own up-keeping but really even a poor girl can be incredible beautiful.

I fell in love with STX and Komag recently. I have already married BNT, AOB and VPHM but the love is as strong as when I met them the first time. Please remember that in my part of the world you are allowed to have more than one wife

The love of my life: DNDN has gone through a hard time but look at her isn't she a striking beauty – and she is pregnant giving birth soon to Provenge the first cancer vaccine in the world!

My new love is Headwaters. She has some sexy curves that any Don Juan of the stock market just most falls in love in. She has a bright future in front of her and she earns enough money to pay her own bills (and a little more).

Her family has a background in Coal mining and everybody knows that is a dying business or is it. Well before we go into the details of HW it might be worth while to look into the coal industry.......

Oil is good, Natural gas is great but Coal is the energy of the future – yeah right!

Think about it. If you were building a billion dollar power plant to generate revenue for you for decades to come, you would like to have a cheap and reliable supply of fuel. Oil and Gas doesn't exactly seem like the best candidate!!! Coal does – there are plenty of reserves and the price is half that of the alternatives (even less!)

Well those people in the power generation business seem to agree. They are going for coal big time. According to Siemens, Alstom and GE there has been a shift from NG to coal and they expect Coal will power 40% of all new power plants in the next 10 years. (25%-30% for NG). As a result of this the U.S. Department of Energy's Energy Information Administration projects that coal consumption in the U.S. will climb 73% to 1.9 billion short tons in 2030, from 1.1 billion short tons in 2004.

So why not just buy coal mine. Well that might be a good idea they are however a bit pricey and there might be better options out there.

I am sure there are a few fans of alternative energy out there that hate this pick. The problem with coal is that it is polluting and generating a lot of waste. That is true so what about a stock who have made it their business to help alleviate these side effects!   

Time to talk about Headwaters......

Hi Michael,

You're very Funny 

You should post more Often

So let's hear it : what's so cool about Headwaters ?

Hi Masternic,

Glad you like an alternative view on investment 

I am sorry for the long wait but my Internet connection was down for most of the weekend.

I will write som more about HW's different businesses later but for now let me just give you some figures.

As said a good track record is always important when evaluating an investment opportunity and Headwaters has a stellar track record. Over the last 7 years revenue has grown from 7 million to 1065 million. That is an average revenue growth per year of 130%.



This phenomenal growth has not been achieved on the cost of profitability. On the contrary the profit of HW has grown consistently over the same period:



And EPS has reflected this:



Earnings per share for the first quarter of Fiscal year 2006 (December Quarter) was 0.60 compared to 0.30 last year.

The stock is now trading at a PE of 11.53 and a PEG of 0.49. That is very cheap especially with the potential this stock has to revolutionize the energy market.....

Hmmmm.... It seems I never really finish the presentation of my new love. That did however not stop me from declaring my love yesterday. So I am now the happy owner of a small part of this magnificient company

I hope the timing is good. At least I got a little help from President Bush in his State of the Union speech:

QuoteThe best way to break this addiction is through technology. Since 2001, we have spent nearly $10 billion to develop cleaner, cheaper, more reliable alternative energy sources -- and we are on the threshold of incredible advances. So tonight, I announce the Advanced Energy Initiative -- a 22 percent increase in clean-energy research at the Department of Energy, to push for breakthroughs in two vital areas. To change how we power our homes and offices, we will invest more in zero-emission coal-fired plants; revolutionary solar and wind technologies; and clean, safe nuclear energy.

We must also change how we power our automobiles. We will increase our research in better batteries for hybrid and electric cars, and in pollution-free cars that run on hydrogen. We will also fund additional research in cutting-edge methods of producing ethanol, not just from corn but from wood chips, stalks, or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years. Breakthroughs on this and other new technologies will help us reach another great goal: to replace more than 75 percent of our oil imports from the Middle East by 2025. By applying the talent and technology of America, this country can dramatically improve our environment ... move beyond a petroleum-based economy ... and make our dependence on Middle Eastern oil a thing of the past.

Headwaters is the main player in clean coal technology. In fact one of the main reasons why this stock is so cheap is the discussion about Section 29. Section 29 offers tax incentives for making energy with "clean" coal (more about that later).

This should in principle give a boost to the share price but lets see tomorrow.....

Mike

Its always fun to read your post Michael. I was wondering your take on ERS and ELN.

Goodluck.

Michael,

I like your fundamental analysis and believe it to be very compelling, and while I know you don't care too much for technicals, I thought I would just give you my view of the technical picture.

On the 1yr chart, we have had a big H&S formation which broke the neckline on Oct 6th at about 36.20.  As the high of the H&S was 45.75, this would give a technical breakdown target of 26.55.  SO far the low has been around 30.00.  Since the H&S breakdown, it has rallied back up to touch the neckline of the H&S top, making a high of 38.34 on Jan 11th, and has since broken through support at $37 and at $35.  It is now battling with resistance at $35, and the target of the H&S top is still in play.

For me, HW needs to break through the congestion zone and resistance at $37 to confirm that it does not want to hit that low target, ideally breaking the H&S neckline to invalidate it.

It could happen, but at the moment, I think that HW has its work cut out for it.

Hope this helps, and in anycase if it does break down further, I am sure you will support your position with lower buys, as I agree with you, the fundamental position does look to be very strong

The Scotsman

Hi Scotsman,

Well it is amazing what you can achieve with a little help from the President of United States 

HW did actually blast through the resistance at 37. We have fallen back again but at this point in time I can't see any major negative changes to Section 29 (that would make my friend Bush look at bit silly wouldn't it?). On the contrary coal is the only fuel, which in the short term can reduce US' dependence on the Middle East so I think we will have another run on 37 in the near future.

Else I will have to make another call to my friend and ask him to intervene!

Mike

Hi, Mike.

Someone asked me on another board (EI  ) what I thought of HW. It has been a long time since I've checked up on it, and searching on 3SOF found your thread.

Now it seems to me that HW has had a terrible year, and I'm not sure what has happened to it. 

Did you keep up on news, and do you still hold? Probably not, since there has been no comments for a long time.

På forhånd tak.