Friday, March 22nd, 2013
By George Leong, B.Comm. for Profit Confidential
The airline sector is sizzling, with rising demand from China and other emerging economies, based on my stock analysis. Revenues in the global airline sector are estimated at $671 billion this year, with profits of $10.6 billion, according to the International Air Transport Association. Plus, my stock analysis suggests that there are significant plane orders flowing in, which you can read more about in ?Aerospace: The Only Way Left to Play Global Growth.?
My stock analysis indicates that with the rise in demand, there is also a rise in the need for the materials used to build planes. A key material is carbon fiber?a compound used for applications that demand a high strength-to-weight ratio and rigidity, such as planes.
The global carbon fiber market is estimated to grow annually at 17% over the next five years to around 118,600 tonnes and a market value of about $7.3 billion by 2017, according to The Future of Carbon Fiber to 2017 report produced by Smithers Apex. From 2012 to 2020, the annual growth for carbon fiber-reinforced plastics is estimated at 16%. These metrics make carbon fiber plays an intriguing opportunity, according to my stock analysis.
My stock analysis indicates a potential play in the carbon fiber market for aggressive investors is small-cap special situations play Zoltek Companies, Inc. (NASDAQ/ZOLT), which is still attractive as it nears its 52-week high of $12.25. My stock analysis notes that Zoltek represents an above-average risk-to-reward opportunity in the equities market. (Please note: this is not a buy recommendation, but simply an example of a good investment opportunity for aggressive investors.)
Zoltek?s stock chart, featured below, shows a strong breakout from the upward channel with an upside gap, as indicated by the blue circle. The relative strength is strong, as is the moving average convergence/divergence (MACD); but you may want to hold off on considering buying until a possible retrenchment back to around $10.00 if the stock fails to hold, based on my technical analysis.
Chart courtesy of www.StockCharts.com
Zoltek, around since 1975, is the largest seller of carbon fiber for the low-cost end for commercial use, according to the company. The company?s carbon fiber is sold under the ?Panex? brand. Zoltek also develops a stabilized and oxidized acrylic fiber that?s used in flame- and heat-resistant applications sold under the ?Pyron? brand. In addition, Zoltek Automotive was formed in April 2010 to develop carbon fiber for the automotive sector.
Global markets include China, India, Korea, and South America (focus on Brazil), which makes the stock a global play, based on my stock analysis.
Zoltek reported higher fiscal sales from fiscal 2003 to fiscal 2007 and from fiscal 2011 to fiscal 2012. Sales increased from $41.8 million in fiscal 2002 to $186 million in fiscal 2012. The problem is that sales are estimated to fall 16.1% to $156 million in fiscal 2013, prior to a rebound of 17.3% in fiscal 2014, according to data from Thomson Financial.
But there?s also a battle brewing after investment firm Quinpario Partners LLC acquired a 10.3% interest in Zoltek, in an attempt to try to turn the company around. The problem is that Zoltek?scurrent management is resisting any changes. While a formal takeover offer has not surfaced, there is speculation that Quinpario may move in this direction.
While this situation plays itself out, my stock analysis suggests that if the carbon fiber sector grows, as is expected, and if Zoltek can regain its growth, we could see a corresponding rise in the company?s share price.
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