Wednesday, May 16, 2007
Flying high: Investing in 'composite' metal
”At first glance, the upcoming Airbus A380 and the Boeing 787 Dreamliner planes look much like existing commercial models – but nothing could be further from the truth,” says
Elliott Gue.
In Personal Finance, the editor notes, “Both are 20% to 30% more fuel efficient than any planes currently flying, due largely to lightweight composite materials.” Here, he looks at a trio of stock involved in the “composite” industry.
”Composites are formed from two dissimilar materials—usually a reinforcing fiber and an adhesive epoxy or resin. Carbon-fiber composite is the most commonly used in aircraft construction; some composites contain metal alloys of aluminum, titanium or lithium.
“And it’s not just airplanes that use advanced materials; wind-power blades, oil rigs and sporting equipment all use high-strength, space-age materials. That spells soaring demand and solid growth for a handful of companies involved in their manufacture.
”Hexcel (NYSE: HXL) is the world’s largest producer of prepregs for the aerospace industry. Prepregs are woven carbon-fiber sheets that have been impregnated with specialized epoxies or resins. When chilled, these sheets remain flexible and can be bent to shape or pressed into molds.
”Once shaped, these prepregs are heated in an oven known as an autoclave. The epoxy hardens to create lightweight carbon fiber composite material.
”Outside aerospace, the wind power industry is fast becoming Hexcel’s most important source of revenues. In fact, wind power is the company’s fastest-growing major source of revenue; Hexcel projects at least mid-teens growth from that line this year.
”The stock got hit last year for two reasons: a slowdown in military orders for fibers used in bulletproof vests and the delay of the A380 plane. But orders related to the A380 will accelerate later this year, and the 787 remains on schedule.
”When it comes to raw carbon-fiber materials, Zoltek (NSDQ: ZOLT) is a global leader. The company has two carbon-fiber factories, one located in Texas, the other near Budapest, Hungary.
”Zoltek sells some aerospace-grade fiber and has a leading market share in aircraft brakes. But with most of the world’s manufacturers concentrated on producing aerospace-grade materials, the commercial market remains underserved, particularly the wind-power market. That’s exactly the market Zoltek is targeting.
”The company’s Hungarian carbon-fiber plant is the largest and lowest-cost carbon-fiber production facility in the world; Zoltek has expanded the plant’s capacity to meet burgeoning demand. And Zoltek already supplies two of the world’s top wind-power plant manufacturers, Denmark’s Vestas Wind and Spain’s Gamesa.
“Allegheny Technologies (NYSE: ATI) derives close to 70% of its revenues from high value-added metal materials such as titanium, nickel and tungsten-based alloys.
”Like carbon-fiber composites, titanium-based alloys are also becoming more important components in commercial airliners, supplanting traditional steel and aluminum. Titanium weighs about 50% less than steel but is equivalent in strength and more heat-resistant.
”Consider that the Airbus A320 and Boeing 737 each contained around 25,000 pounds of titanium. In contrast, the A380 and the B787 contain a whopping 150,000 pounds and 250,000 pounds of the metal, respectively.
”Aircraft demand accounts for about a third of Allegheny’s sales. The company is exposed to a number of other high-growth end-markets such as alloys used in oil drill bits and specialty metals used in the manufacture of nuclear reactors. Buy Allegheny Technologies under 125.”
posted at 11:45 AM
