The environment isn't looking too healthy for battered pollution stocks, now that some Republicans want to take the teeth out of environmental laws. So why are big investors snapping up shares of Fuel Tech (FETKF), which has developed proprietary air-pollution-control technologies?
Despite the bleak outlook, Fuel Tech is in the midst of a turnaround. In the red since 1990, it is expected to report breakeven results for 1994. And for this year, Oppenheimer analyst Leah Rush Cann sees Fuel Tech in the black, with earnings of 18 cents a share. A bigger kicker will come next year, when she foresees earnings of $1.20. That's probably why some big investors have not bailed out of Fuel Tech--including a major British insurer, Friends' Provident Life Office, which holds 5%.
What's so hot about Fuel Tech? Investors are betting big on its NoxOut process, which reduces oxides from utility boilers and industrial furnaces. The company, which invested $70 million to develop the process, has formed a joint venture with Nalco Chemical, the largest U.S. wastewater treatment company, to market NoxOut.
Worries about what Congress might do about the Clean Air Act have depressed Fuel Tech shares. They're currently trading at 5, down from nearly 10 in September. But as NoxOut production ramps up, the impact on earnings should be substantial, says one money manager who has been buying. The market for NoxOut is expected to reach $3 billion a year over the next five years, he says.