Small-Cap Spotlight: Can Hexcel Excel?

In this week's small-cap spotlight, Frank and Larsen take a close look at Hexcel(HXL Quote), a carbon-fiber company that is up almost 50% over the past year. But is the stock a good buy at these levels, or is it time to take some profits?

Frank: Growth Is Factored In

When I began researching Hexcel, my immediate reaction was "great company." Hexcel is in the business of producing carbon fiber used for airplanes, wind blades, autos, satellites and recreational applications. Carbon fiber is in high demand these days because of its flexibility, strength and light weight, which result in huge cost savings for customers.

When to Build Hexcel Into Your Portfolio

Hexcel's strongest market is aerospace, which accounted for more than 50% of sales last quarter. The growth opportunity is reflected in estimates from airplane behemoth and Hexcel customer Boeing(BA Quote) that say carbon fiber cuts its fuel use by up to 20%. To get a glimpse of the pent-up demand within the aerospace industry, Boeing and Airbus have reported more than 1,800 orders this year; their combined backlog over the next six years stands at more than 6,000 aircraft.

In addition to aerospace, wind power and defense markets offer huge growth, and these industries should see strong demand over the next 12 to 24 months despite the recessionary conditions that some economists are predicting. In response to the huge demand, Hexcel recently announced a two-year carbon fiber expansion program that will raise capacity to 16 million from 9 million pounds by year-end 2009.