Headwaters: Heads Up!

09/17/2004 12:00 am EST


Nancy Zambell

Editor, Wall Street's Best Investments and Wall Street's Best Dividend Stocks

“We have spotted a company with terrific growth potential, that's a leader in the alternative energy industry,” says Nancy Zambell, editor of Elite Small Cap Trader, an exclusive advisory service, designed for sophisticated investors. Here’s her look at Headwater.

“Shares of energy companies are perking up again lately, in spite of a recent pullback in crude oil prices. That's because short-term fluctuations can't hide the fact that energy prices overall are much higher now than they were just a year ago. Both crude oil and natural gas costs are up sharply, and that's having a very beneficial effect on alternative energy companies. Headwaters (HDWR NASDAQ) is developing a unique method of converting nasty coal soot into environmentally friendly products. About one-half of America's power plants are still coal-fired. Of course, the downside to coal is pollution; it's just not as clean burning as other energy sources like natural gas. But with the costs of oil and gas through the roof, many electric utilities are planning to fire up their coal usage. Enter Headwaters.

“Essentially, this company is involved in two businesses with terrific synergies. First, Headwaters came up with a proprietary process for converting dusty coal-mining waste into a solid synthetic fuel, which it sells to utilities and coal-mining firms. Second, the company also visits coal-fired power plants to help them clean up their act. Then Headwaters takes this ash, which would otherwise be disposed of in a landfill, and uses its exclusive technology to turn it into cement, artificial stone, and cinderblock construction materials. Now, here's the best part: When this leftover coal-ash concrete is used in construction projects instead of traditional cement, the resulting structure is four times stronger. Using a ton of spent coal-ash instead of a ton of cement saves the planet from more than a ton of greenhouse gasses that would otherwise get released into the atmosphere. Let's see: construction materials that are environmentally friendly, and stronger and lower cost than traditional cement. Talk about being in the right place at the right time with the right product.

“Headwaters grew its sales from $76.4 million in 1999, to more than $387.6 million last year. Total sales should reach $502 million for all of fiscal 2004. When it comes to profits, Headwaters' bottom line is soaring as well!  Earnings exploded from just 38 cents per share in 2000 to $1.30 a share last year. And this year, Headwaters should see profits jump another 28%. But the really rock-solid part of Headwaters' financials is its awesome cash flow $56.4 million last year. This means Headwaters is very well positioned with extra cash that can be spent on acquisitions, marketing, expanding its existing plants, or even buying back its own shares. All in all, Headwaters looks like an outstanding company with unusually strong growth prospects.  Its unique technology helps coal-fired power plants operate cleaner and more efficiently.  At the same time, Headwaters recycles coal waste into eco-friendly building products that are in high demand because of their exceptional durability and cheaper cost.  Any way you look at it, this company looks like a big winner to us.”

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