James Altucher has written about two potential wind power plays in a recent Financial Times article. The two stocks are AeroVironment (AVAV) and Otter Tail (OTTR). Yes, strange names, but Altucher mentions that these stocks interest him in part because his ".... general approach when dealing with “hot topic of the day” type stocks is to look for back doors. Find stocks that have legitimate cash generating businesses, trade at cheap multiples and happen to be making serious moves in whatever the hot field is." AeroVironment and Otter Tail certainly fit this description since they both have other primary businesses that do something other than support the wind power industry. Therefore, if wind power ends up being a passing fad (not likely, but scale could be less or slower than expected), you still have something else to fall back on. Probably not a bad strategy given the recent introduction of numerous companies claiming to be in the wind industry, as well as the number of wind power-based companies that still trade over the counter and on the pink sheets.

AeroVironment was founded in 1971 and headquartered in California. Its primary business is making unmanned aircraft systems and energy technologies for military and weather uses, among others. The company also offers a fast charge system for recharging industrial vehicle batteries while they remain in the vehicle. The market cap of the company is around $600 million. It has a trailing P/E of 29.8, and forward P/E of 22.1. The PEG Ratio is 1.18, with a quarterly revenue growth rate year-over-year of 26.8%.

Source: StockCharts.com
AVAV has moved up recently after announcing that it secured a contract to produce its new Puma AE small UAV for the U.S. Special Operations Command. The indefinite delivery, indefinite quantity contract begins with an initial delivery of $6 million. If the initial one-year contract delivers at 100%, and the four single year follow-on options are exercised, the contract could go as high as $200 million. Management is expecting to grow sales and earnings at 20% to 25% per year. Of course, this says nothing of the wind business, which is currently a very small, shall we say insignificant part of their business. In a sense you are getting the wind business for free, and are buying into to a company that is doing well in the UAV market with the stock reflecting the defense earnings. But there is potential for profits from wind investment.