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) --

Robert W. Baird

boosted its rating on

Woodward Governor


, which makes parts for wind turbines and diesel engines, to "overweight" yesterday, sending its shares up 6%.

While many investors may be unfamiliar with Woodward Governor, the Fort Collins, Colo.-based company offers an opportunity to tap into growing demand for machines that control emissions and increase energy efficiency. Ratings raised its rating on the stock to "buy" on May 22, and its shares have jumped 52% since then.

Yesterday's upgrade cast light on a stock that's primed for a solid 2010. Woodward Governor has sound fundamentals and more growth potential than its competitors. Its shares are also cheaper than those of its peers.

With a market cap of about $2 billion, Woodward Governor is not the typical small-cap that gets a huge boost from a single upgrade, but it is hardly a household name. The company makes performance optimization equipment for gas and diesel engines as well as for aircraft engines and power generators and converters, such as those that can be found in wind turbines.

Woodward Governor has a PEG ratio of 0.92 and a price-to-earnings ratio of 16, versus a ridiculous industry average of 74. Despite a projected revenue decrease next year, analysts expect earnings to grow by almost 22% as more countries buy systems that improve energy use.

The company increased its leverage in 2009 to help it expand, but the current level, while far higher than before, is not totally out of control. The company appears to be betting on the heavy interest in efficiency to drive sales in the coming years and is ramping up to take advantage of that change. The company's revenue grew almost 14% last year on the acquisition of



motion control systems.

If you're looking to play the energy-efficiency shift, consider investing in Woodward Governor. Baird set a target price of $33 on the shares, which is 10% more than this week's prices.

-- Reported by David MacDougall in Boston.

Prior to joining Ratings, David MacDougall was an analyst at Cambridge Associates, an investment consulting firm, where he worked with private equity and venture capital funds. He graduated cum laude from Northeastern University with a bachelor's degree in finance and is a Level III CFA candidate.