Why the big decline in turbine orders? The federal Production Tax Credit is set to expire at the end of 2012, so developers of wind farms have fast-tracked projects to take advantage of the tax credit. CEO Jeff Immelt doesn’t expect the tax credit to be renewed.
For this reason, being part of a bigger entity that can cushion the blow of a weakened industry in the U.S. is a smart way to play the wind game. Eventually, the market will rebound.
Trinity Industries
Lastly, I’m going to suggest Trinity Industries (NYSE:TRN), a company that manufactures railcars, barges, highway guardrails and many other products.
I first recommended Trinity in a September article about conglomerates. Trinity is a leading manufacturer of wind towers in the U.S. Its wind tower revenues for the first nine months of 2012 were $189.5 million, approximately 8% of its overall manufacturing revenues. It’s a tiny piece of the pie, I’ll grant you, but it’s part of a very strong business — the value of that shouldn’t be discounted.
As I indicated in the previous discussion about GE, the wind turbine business is a tricky one. While Trinity has a wind tower backlog of $754 million, $413 million of which is currently under litigation with a customer that breached a long-term supply contract. As a result, the near-term outlook for this slice of its business continues to be very downbeat.
No worries. Trinity’s overall business in the first nine months of the year did a standup job, with revenues up 38% to $2.9 billion, and with an operating profit of $419.2 million, itself an increase of 46%. This is one beauty of a company.
PowerShares’ Global Wind Energy Portfolio
I’ll leave you with a fourth option: PowerShares’ Global Wind Energy Portfolio (NYSE:PWND).
PWND is a global portfolio of 28 wind-related companies, and — wouldn’t you know it — GE and NextEra Energy are among its holdings. The fund has been trading for more than four years now, and its performance has … well, it’s been awful, off 75% since inception, for a not-exactly-cheap 0.75% in expenses.
However, if you believe in the idea of reversion to the mean, PWND is about ready to blast off.
On the off chance you do go this route, make it a small part of your portfolio. Reversion to the mean is common, but not a certainty.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
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