There are many different ways a company can
achieve GameChanger status. Here is one: You
start with a megatrend and a visionary comes
along within that megatrend to rewrite the rules of
the game.

That’s the story with Zoltek (NASDAQ:
ZOLT).

The megatrend here is new, stronger materials.
The world wants faster and more powerful cars,
heavy equipment and jet airplanes, yet we want
them to be lighter and more energy efficient as
well. Of course, we also want them to last.

Enter carbon fiber — the new material of choice.

If you were to sit down and invent the ideal
manufacturing material, I think it would have to be
carbon fiber. This stuff has it all: It is heat and corrosion
resistant; it is lighter than steel and aluminum,
yet 10 times stronger; it conducts electricity;
and it is easily molded to specific product specifications
such as aircraft brakes, tennis racquets,
golf clubs, large blades on wind turbines, etc.

Up until now, the problem has always been that
carbon fiber was very expensive. We’re talking almost
$150 per pound. Zoltek has changed all that
thanks to efficiencies it developed in the manufacturing
process. Depending on what you’re using it
for, carbon fiber is now more reasonably priced at
$10?$20 per pound. That’s a whole new ballgame;
carbon fiber is now ready for prime time!

Here are just a few of its current uses:

• Wind power. Zoltek’s two largest customers,
  Vestas and Gamesa (both European), dominate
  the manufacturing of wind turbines.
  These are the funny “windmills” you see
  dotting the countryside. In the move to clean
  energy, wind turbines are a newer and major
  source of electricity. Until recently, the massive
  blades that drive the turbines were made
  from fiberglass, which cracks under extreme
  duress. Zoltek’s carbon fiber is lighter and
  can resist even the worst of conditions.
• Cars. BMW has commissioned Zoltek to
  replace six key parts in its automobiles, like
  the brake pads. That number jumps to eight
  parts in 2009, and I don’t expect it to stop
  there. BMW wants to be the first major automaker
  to offer a car whose body is totally
  comprised of carbon fiber.
• Aircraft. Brakes on airplanes take terrible
  abuse. Stopping a wide-body jet landing at
  180 miles per hour is no easy task, and it
  quickly wears the steel brake pads in use
  today. Carbon fiber is 10 times stronger than
  steel, so the airlines are starting to switch.
  Zoltek is partnering with the two biggest airplane
  manufacturers, Airbus and Boeing, to
  install the brake pads on newly built aircraft.
• Oil and gas exploration. As demand grows
  for oil and gas, exploration companies need
  to dig deeper to try to find more. Drilling below
  6,000 feet is nearly impossible with steel
  tubing, which breaks under the stress at those
  levels. Carbon fiber, however, is just getting
  warmed up! The switch is under way to
  carbon fiber because it’s the only way drillers
  can hope to meet the world’s energy needs.

Grab this Great Opportunity

Zoltek was founded in 1975 and is based in St.
Louis, Missouri. The company stayed under the
radar for many years as it served small and specific
clients mostly with one-time projects. But now,
its proprietary manufacturing methodology is the
secret sauce that will spark a new wave of growth
and all but ensure that pricing power and margins
hold up like, well, like a carbon fiber rock.

To give you an idea of the kind of growth I’m
expecting, revenues for the 2007 fiscal year (FY)
were up 42%. Earnings came in at $0.71 per share,
up from practically nothing the year before. Looking
ahead, I forecast FY 2008 revenues of $230
million (52% growth) and earnings of $1.30 (83%
growth!). In 2009, I look for earnings of $2.00 per
share on revenues of $350 million. Beyond that,
the CEO has stated publicly that his goal is to realize
revenues of $500 million by FY 2010.

These are growth numbers made possible only
by a GameChanger.

In that context, the stock is an extremely attractive
buy right now. Many other investors — those
who don’t understand the GameChanging nature
of the company — focus more on the shorter term.
The truth is that Zoltek’s business can be a little
lumpy from quarter to quarter.

We just saw this again with the most recent
earnings report from the December quarter.
Revenues grew 33% over the previous year to
$40 million — terrific growth, but the Street was
expecting $43 million. Does this indicate a fundamental
problem? No. Many customers feared a
shortage in carbon fibers and over ordered. When
the shortage didn’t develop, they delayed delivery
until the new year.

So what you have is an inconsequential (and
short-term) imbalance in orders versus inventory.
As the business grows, this will smooth out and
revenues will become more predictable, but CEO
and founder Zsolt (yes, that’s his name!) Rumy
has also taken a brilliant step to fortify his senior
management team to make sure the company
grows properly. He brought in a talented COO and
a Senior VP of supply chain management, both
excellent moves as this company begins to hit the
sweet spot of growth in revenues and earnings.

The important point for us is that the underlying
industry dynamics are in great shape and
Zoltek is the GameChanger in this industry. Oh,
and when the orders and inventory move back into
balance, expect a positive earnings surprise that
will drive the stock higher. Add to that a new manufacturing
facility in Mexico that will boost revenues
and earnings, and I expect a very strong second half
of the year.

ZOLT is a real bargain right now. It has been
knocked down on short-term and shortsighted concerns
and I want you to grab it. Buy ZOLT under
$32. I look for the stock to hit $50 by the end of the
year — more than a double from current prices. Further
down the road, Zoltek has a real opportunity to
become a 10-bagger for us!