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June, 2008 Archive

Precision Castparts: Part 2 – Drivers for PCP’s Power Generation/Industrial markets

We’ll group these two markets together because the use of special metals from the likes of PCP for power generation and industrial markets are often very similar.

INDUSTRIAL GAS TURBINE (IGT)

This is the main driver for these two markets and why the power generation/industrial markets have so much potential for PCP. What are IGT’s? IGT is just a fancy name for jet engines that are used to generate power. Jet Engines just might be the most common way of generating power for heavy duty jobs from natural gas power plants to huge cargo ships. Since PCP is already the best at making jet engine parts for planes, making jet engine parts for other uses is a piece of cake.

Note: The momentum in IGT should prove even more lucrative for Woodward Governor, who has more than 60% in Turbine control technology. Basically, Woodward Governor’s control technology makes the IGT’s smart: allows IGT’s to operate under more situations, allows the IGT’s to self adjust during operations, and makes IGT’s more efficient and last longer, etc.

Estimates for IGT production will grow from about $9 Billion in 2007 to $15 Billion in 2011. IGT aftermarket and services are expected to grow from $1.3 Billion in 2005 to $1.7 Billion in 2010. The biggest players, GE and Seimens, are too big and diversified for this growth in IGT’s to significantly move their stock, which is why we’re turning to component players like Precision Castparts and Woodward Governor.

Why are IGT’s selling like hot cakes? Read the rest of this entry »

Reuters: ANALYSIS-U.S. coal production unlikely to sate world demand

Same concerns all the major utilities spoke about at the Goldman Sachs Eighth Annual Power and Utility Conference on May 13-14, 2008. The long term problem of electrical power shortage due to shortage of coal and high quality coal is just rearing it’s ugly head. I’ll have to do a bit more research to see if coal miners like Peabody Energy (BTU) and Arch Coal (ACI) are the ideal plays in this situation. If they can’t open new mines and increase capacity, their long term (5 years or more) potential to benefit is still unclear to me. I’m not saying they won’t…they’re great companies and great companies find ways to profit, especially off of ginormous trends like this. Just got to do more research. Same with the mining equipment like Joy Global (JOYG) and Bucyrus (BUCY). One thing’s for sure though, electrical power use will only grow, so power plants will have to become more efficient. I’m thinking engineering and construction companies like McDermott (MDR), Fluor (FLR), Shaw Group (SGR), and Foster Wheeler (FWLT) will do well along with power plant components like Flowserve (FLS), SPX Corp (SPW), Woodward Governor (WGOV), and Thomas and Betts (TNB). Preliminary thoughts…more on this later…

RPT-ANALYSIS-U.S. coal production unlikely to sate world demand

“By Bruce Nichols

HOUSTON, June 16 (Reuters) – U.S. coal production has room to grow, but expansion is unlikely to meet surging world demand because miners fear a boom-bust cycle, key reserves are declining, and regulation has tightened.

Despite soaring prices, the U.S. Energy Information Administration has cut projections of U.S. output rather than raised them, and now foresees a total of 1.166 billion short tons by 2010, barely up from a record 1.163 billion in 2006.

That is not enough to overcome what some coal officials see as a shortage of 25 million to 35 million tons this year in the 6-billion-ton world market and a shortfall of perhaps 70 million tons next year.

Closing the gap with U.S. coal would require spending billions of dollars to expand mines, rails and ports, investment difficult to recover if — as has happened before — supply growth exceeds demand and prices fall…”

Full Article: http://uk.reuters.com/article/oilRpt/idUKN1637587220080616

**Disclosure: I own shares of MDR, FWLT, and SPW as of this post. **

Precision Castparts: Part 1 – Overview of an Abandoned Growth Story

Precision Castparts (PCP) has been on a nasty slide down to $100 since tapping $130 when it reported earnings on May 6, 2008. Stocks who supply products going into commercial airlines, including PCP, continued to be sold off. Investors seem spooked by recent fleet downsizing by the major U.S. carriers on the back of high oil prices and struggling consumers. Or, PCP is getting dumped along with all other stocks related to Defense just because Obama won the Democratic nomination, which people take to mean Obama will be president and that the U.S. will never need a single bullet again or sell our weapons of war to the rest of the world. Geez investors are imaginative!

I don’t believe things have gotten worse for PCP since May 6th. The U.S. fleet downsizing has a minimal, if any, negative impact on PCP’s aerospace business. Like other airplane parts supplier, PCP’s aerospace business is levered to GLOBAL commercial airline demand, which is still flying off the charts. PCP’s direct exposure to Defense compared to its overall aerospace business is limited. More importantly, PCP has large exposure to the hot hot hot global power generation and oil & gas infrastructure. This segment, which PCP calls it’s power generation segment, is growing like a weed such that PCP has to expand 2 new factories to meet demand.

Here’s the plan. Overview of PCP, then the opportunities in power generation, and finally addressing the more complex concerns of the U.S. commercial airline exposure. Read the rest of this entry »

Schwarzenegger proclaims that California is in a drought – LaTimes.com

Here’s just the latest incident of our under-invested aging infrastructure leading to a crisis. This won’t be pretty for those of us in California, but should be yet another boost to the opportunities in infrastructure construction and infrastructure components. Read the article first, trades/investment ideas to come later…

“SACRAMENTO — Gov. Arnold Schwarzenegger proclaimed a statewide drought Wednesday, warning that California’s water supply is falling dangerously low because of below-average rainfall and court-ordered water restrictions aimed at protecting fish.”

Full Article: Schwarzenegger proclaims that California is in a drought