... and Clean Coal

05/12/2006 12:00 am EST

Focus:

James Oberweis

President, Oberweis Asset Management, Inc.

“Cheap gasoline is under attack, due to years of poor energy policy,” notes small-cap specialist Jim Oberweis. “And the political gods are likely to shine favor on companies who help to decrease American dependence on oil.” Here, he looks at clean coal and fuel cells.

“While the situation is too complex to be resolved by a couple strokes of legislative pens, politicians in this election year will try their best–which will create opportunities in the stock market. While obvious, pure-play alternative energy companies have already been bid up dramatically, there are a few smaller-cap peripheral plays that are worthy of consideration.

“Coal-fired power generation businesses, given the abundance of coal within America’s borders, should offer above-average growth opportunities. Growth in China and emerging market economies favors coal-fired electricity generation, and many of those plants will require emission control. Companies that help to combat the pollution consequences of coal generation will have the wind at their back.

“Our favorite is Fuel Tech N.V. (FTEK NASDAQ), which provides fuel chemical process and nitrogen oxide (NOx) reduction technologies used in air pollution control. The company’s NOx reduction technologies reduce NOx emissions in flue gas from boilers, incinerators, furnaces, and other stationary combustion sources. The FUEL CHEM product line uses chemical processes for the control of slagging, fouling, and corrosion in furnaces and boilers.

“Regulations in the US and Europe regarding air pollution control are the primary driver of NOx reduction adoption. The market for these technologies is expanding in China as well. In the company’s latest reported fourth quarter, sales increased approximately 110% to $16.3 million from $7.8 million in the fourth quarter of 2004. Fuel Tech reported earnings per share of $.11 in the latest reported fourth quarter versus a loss in the same quarter of last year. We have added Fuel Tech to our Model Portfolio, and note that clients of Oberweis Asset Management own approximately 907,000 shares.

Hoku Scientific (HOKU NASDAQ) also has promise. Hoku was founded in 2001 and makes components for fuel cells. Hoku has development agreements with Sanyo Electric and Nissan Motor. In addition, Hoku is the prime contractor on a US Navy project to develop a fuel cell power plant prototype. Hoku is a particularly risky investment given the early-stage commercial application of fuel cell technology, but nonetheless deserves consideration for risk-oriented investors.”

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