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Stock market trading from the Windicator

Windpower Monthly's industry stock index and the market are both back to where they started in January, but it has been a year of two halves. During the first half, wind stocks under-performed the market, beleaguered by lack of investor confidence and poor 2002 results. In the second half, they bounced back. Vestas was the star performer of the last quarter, with its stock up 70% since July. Gamesa continued to perform steadily -- it has outperformed the market the entire year. In contrast, NEG Micon has suffered following what were viewed as disappointing half year results. Nordex, at the bottom of the wind league, continues its struggle for survival in the wake of its management crisis and waning sales.

The rise in stock prices indicates that investor sentiment is clearly positive, though it is based on three quite different drivers. First, the stock market as a whole has rallied at select signs of economic recovery. High growth companies such as wind turbine manufacturers usually do best in this situation as they usually suffer more during market downturns. Relatively speaking, they have more to gain during upturns than more stable, lower growth companies.

Second, while a rising market tide usually lifts everyone, Vestas and Gamesa have continued to out-perform on the back of a steady stream of new orders and positive financial results. The market is clearly differentiating between these companies and the others who have not performed in the same way.

Thirdly, for the last year speculative investors have been circling the poor performers, looking to take advantage of sudden movements caused by companies missing or having to restate their profit estimates. They were given plenty to prey upon earlier in the year, but not much of late. This has caused them to have to scramble to cover their positions and has meant there were more buyers in the market at certain key times, further driving up share prices.

On the whole analyst stock recommendations did not change dramatically over the last quarter despite the rally, which is partially due to their views being formed earlier in the year and largely confirmed as accurate as the companies announced their results. Investors and analysts have also been waiting to see if the political uncertainty on wind's markets in the US and Germany will be resolved and if GE Wind will impact the market position of its competitors. There could soon be a rash of sell recommendations if the seemingly positive news flow about offshore Europe fails to outweigh these negatives.

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