Parker Picks Alternative Fuel

12/27/2002 12:00 am EST

Focus:

Sherri Parker

Co-Editor, UnDiscovered Stocks

"Despite the problems of our increasing dependence on foreign oil, demand in the US has never been greater," says Sharon Parker, editor of Undiscovered Stocks. "Alternative fuels have been talked about for years. My prediction is that we are on the verge of a revolution in alternative fuels." Here's the advisor's recommendation to play this trend.

"Headwaters (HDWR  NASDAQ) is involved in converting fossil fuels like gas, coal, and oil into clean, non-polluting fuels. Through its Coval Fuels division, the company has commercialized a pioneering technology that transforms the waste by-products of the coal and steel industries into a solid, cleaner-burning alternative fuel. An amazing 61% of all synthetic fuel production uses Headwaters' patented technology. The company licenses the technology and supplies the chemical reagents to end users such as coal companies, electric utilities, and steel makers. In 1998, Headwater customers produced 300,000 tons of alternative fuels. This level reached 12 million tons in 2001 and is predicted to surge to 80 million tons by 2004, with no end in sight. That adds up to big profits now and in the future.

"This cutting-edge technology propelled Headwaters to its first profitable year in 2000 when it earned $3.7 million. That number grew to a whopping $24.3 million in 2002. Last year, the company acquired Hydrocarbon Technologies, a small firm that develops technology to produce ultra-clean, high value liquid fuels from lower-value coal, gas, and waste oils. Its non-catalyst technology changes the physical nature of the fuels at the molecular level, while extracting polluting elements. This use of nanotechnology is simply the greatest advancement the alternative fuels industry has seen in the last 20 years.

"Overall, if there was ever a time to put this alternative fuel stock in your portfolio, it's now. This company has a tremendous foothold in an industry that is destined to be the next great revolution. It has proprietary technology that is beginning to pay off big. Fiscal year 2002 results were outstanding, with record results. Revenues climbed 163% and pre-tax income rose 178%. Next year, the company is expect to grow its revenues from $119 to $403 million and increase its earnings by 36% to 40%. Meanwhile, the stock is undervalued. It trades about 50% below its 52-week high, with plenty of room to appreciate. It also trades at less than 1/2 the industry norm. Finally, the stock is undiscovered, with just three analysts following these shares. Buy up to $15.50 for a 12-24 month target of $23."

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