Zoltek Companies, Inc. (ZOLT)

Carbon fiber manufacturing is a cyclical industry. Just like all other commodities, you want to buy low and sell high. Right now, Zoltek's book value is $9.17 per share and it's selling at a 32% discount to that. Revenues for ZOLT did not drop off all that significantly over the past quarter --- which is very surprising given the massive economic downturn that has particularly impacted the alternative energy sphere. I analyze a lot of solar companies, as well, and I was surprised by how little ZOLT's revenue picture seemed to be affected by this turn of events. It's worth noting that the downturn should theoretically hit them the hardest as higher-cost carbon fiber manufacturers start dumping their fiber onto the market at lower costs.

At current prices, it appears as if the market believes that ZOLT will remain unprofitable indefinitely or that investors believe that there will never be demand for carbon fiber for wind turbines any time within the next decade. I don't agree with that. Even if demand for wind turbines stays suppressed, carbon fiber has other uses and ZOLT is the lowest-price player in this arena. But there's not a lot of evidence that demand for wind turbines has declined at such a rate to lead one to believe the entire industry will collapse.

Insiders have been buying into this stock over the past six months. This is a company with heavy inside ownership with the CEO being the largest stakeholder. I think they understand the business fairly well, and at the current prices, I don't see much to lose any more. Moreover, ZOLT has very low debt (under 20% debt-to-value) and should not have much difficulty surviving the downturn. To see a commodity stock with low debt trading well below book value in a high-growth potential industry seems insane to me.

I was wrong about this at $20. I think I'll be right about it at $6.25. In fact, there's a good possibility it can make its way back up to $20 over the next few years; or even move higher. The downturn may even help Zoltek maintain their moat even longer. I'm going with strong outperform over a 2-10 year time horizon.