Are you ready for the electric revolution in the automotive
During the past few months, a limited number of Americans have
begun to buy the Chevrolet Volt from
General Motors Co. (
and the Leaf from Japan's
Nissan (OTC: NSANY.PK).
Response thus far has been lukewarm. These vehicles are
expensive, and the cost appears to overshadow consumers' perception
of the eco-friendly advantages.
Potential buyers of pure electric vehicles are still wondering
where they plug them in. But this concern will change as
manufacturing costs come down and the price of oil rises (an
inevitable future, in my opinion). Investors should be looking for
ways to invest in the next great electrical infrastructure rollout
- it could rival the arrival of the cable industry a generation
One diversified company provides small cap investors with two
investment angles to play potential infrastructure boom. At first
AeroVironment (Nasdaq: AVAV)
may seem an unlikely candidate. The company is a defense contractor
- yet it has a growing green technology business that could provide
a platform for future expansion. AeroVironment's primary business,
until recently, has been selling unmanned aircraft systems, also
known as remote-controlled drones. Since 1986 the company has sold
these drones to the U.S. military and its allies.
The mini-aircraft help the military gather reconnaissance data
from the battlegrounds of Afghanistan and Iraq, and also help in
monitoring forest fires and volcanic eruptions. They also provide
surveillance to make sure pipelines aren't leaking, and help
authorities patrol the porous U.S. borders for illegal
AeroVironment says the high-tech aircraft are small enough to
fit in a rucksack. The Raven, with a five-foot wingspan, weighs
about four pounds, and troops on the battlefield can launch them by
hand, to see what they can't.
***But as every the defense contractor has endured painful
budget cuts in recent years. In February 2010, a defense budget
reduction in the Raven drone program weighed heavily on the stock.
The U.S. government allotted 56 percent less for the program in the
fiscal 2011 year that began October 1.
In 2010, AeroVironment's stock closed the year down 8 percent.
But recently, shares have rebounded by about 20 percent and the
50-day moving average recently crossed above the 200-day moving
average, a bullish technical signal known as a 'Golden Cross.'
The stock has been pushed higher because the company is now
supplying the guts of electric vehicle charging stations. In the
company's fiscal year that ended last April, this business
accounted for about 10 percent of revenue.
AeroVironment was selected to build up to 100 electric vehicle
fueling stations in seven cities in South Carolina. The company is
also part of the rollout of the Nissan Leaf, the first commercially
available car powered entirely by electricity, and is working on
the residential infrastructure needed to make the all-electric
NRG Energy picked AeroVironment in November 2010 to build the
first privately funded electric charging system for the city of
Houston, Texas - the fourth-largest U.S. city. In San Francisco,
the Bay Area Air Quality Management District recently awarded
AeroVironment $350,000, part of a $3.9 million effort to spread the
build-out of electric vehicle charging stations.
Besides consumer vehicles, the company's charging systems also
are used in industrial applications.
***As demand rises for these vehicles, so will the competition.
But AeroVironment has a head start, and a wealth of government
funded research in its back pocket. The growth in the industry
signals that there is money to be made. For example,
General Electric (
made a big show last summer with plans to roll out charging
stations for electric vehicles.
AeroVironment has a market cap of $605 million and 16 analysts
following the stock - half rate it a hold, the other half a
Thanks to its military contracts, AeroVironment remained
profitable through the recession, and posted a $20.7 million profit
in the last fiscal year. And while the military has scaled back the
Raven program, the U.S. Army did place a $46.2 million order in
December, and a $7.8 million upgrade order in January.
For the just-ended fiscal third quarter, the consensus analyst
estimate is a 31 percent increase in revenue, to $80 million, and a
29 percent increase in earnings, to $0.39 per share, as compared to
the year-ago period. For fiscal year 2011 analysts expect flat
earnings, and 13 percent revenue growth to $282 million.
But growth could be faster if the electric vehicle movement
catches on. Right now electric charging systems account for just a
fraction of the company's overall business. I consider
AeroVironment a bargain with limited downside.
AeroVironment is just one small cap stock worth your
Click here to learn more about why this exciting
class of stocks, and why small cap stocks ALWAYS outperform coming
out of a recession.