European finance ministers -- also known as "the gang that
couldn't shoot straight" -- surprised investors by finally getting
their act together, jointly cobbling a relief package for Greece
that should remove any sort of doomsday risk from the
, at least for the next few quarters. A powerful relief rally took
place in stock markets across the globe, as a sign of a welcome
Yet the good news also brings an unexpected problem. A stabilized
Europe, coupled with a U.S.
that is likely to dodge a
, means oil prices are starting to perk back up. Crude oil, of the
West Texas Intermediate (
) kind, shot up from $77 a barrel to $93 in October and, before
long, expect to see gasoline prices quickly move back to the $4
Meanwhile, even as crude oil surges, natural-gas prices remain in a
funk as U.S. output surges ever higher. The broadening price
differential between crude oil and natural gas could be a boon for
several companies, and as
I mentioned a couple weeks ago
, is bringing real attention to the exploration side of the
business. But another group of companies is positioned to benefit
if natural gas takes off as an energy source in the transportation
We've already got evidence of how such a move would be greeted by
Westport Innovations (Nasdaq:
has seen its stock nearly double since February as a rising number
of truck fleet operators line up to use Westport's natural gas
retrofit technology. Considering the high price of diesel fuel, a
switch to natural gas makes ample sense. Reducing oil imports (from
sometimes hostile trading partners) and boosting usage of
U.S.-produced gas also holds appeal in terms of national security
and persistent trade imbalances.
What about cars? Well, the same logic applies. On an
apples-to-apples basis with gasoline, natural gas costs less than
$2 per gallon. (It currently costs upwards of $5,000 more for a
natural gas-powered car than a regular car, though that should drop
rises.) Yet consumer awareness of the benefits remain fairly low
and Congress -- which had been expected to be a big backer of
natural-gas transportation subsidies -- no longer looks set to
provide any help. Another concern: a shortage of natural-gas
fueling stations. Luckily, a pair of companies is stepping into the
breach to help catalyze the industry transition.
Clean Energy Fuels (Nasdaq:
This company, formerly known as Pickens Fuels, was founded by oil
legend T. Boone Pickens. Though he made his fortune in crude oil,
he's become much more
on natural gas in recent years, especially as a transportation fuel
source. He currently controls about 4.7 million
(or 7%) of the company, so he's got an obvious agenda. And his
vision has not yet delivered the shareholder returns he had hoped.
Even though Clean Energy Fuels is the largest operator of natural
gas filling stations (with almost 250 at last count), bottom-line
results haven't added up. The company has never generated positive
free cash flow
and has had to repeatedly sell more stock to raise capital in order
to extend the filling station network.
Yet that network of filling stations may has finally reached
. The company is expected to book quarterly
profits by the middle of next year. Fuel sales shot up 60% in 2010
(to $212 million) and should top $350 million by next year. At a
$500 million run rate, the company thinks it would generate solid
levels of profitability.
Of course, more natural-gas-fueled cars on the road would instantly
change the company's trajectory. And help may be on the way.
already sells a natural-gas-powered Civic,
is launching a line of pick-up trucks powered by CNG (compressed
natural gas), and
Transit Connect minivan will soon be available in a similar
configuration. European automakers, including Fiat, already sell
natural-gas-powered cars in their home region.
Another way to play the trend:
Fuel Systems Solutions (Nasdaq:
, which has been around for more than 50 years and generates more
than $400 million in annual sales. The stock has fallen more than
40% from its
to a recent $23 as the company's Italian operations took a big hit
from the end of gas engine conversion subsidies from the Italian
government. For 2011, sales are on track to fall about 5% to around
$407 million. Yet analysts spy a rebound in 2012 as new markets in
Asia and Latin America expand. Sales are expected to rise more than
10% to around $450 million and
per share may double to around $1.20. Fuel Systems is also gaining
traction in the United States. Those GM pick-up trucks, noted
above, will be converted by Fuel Systems' IMPCO division.
Risks to Consider:
Natural gas as a transportation source only makes sense in an
era of pricey crude oil. If the price of oil falls back, perhaps to
below $70 a barrel, then any momentum this nascent industry may
have will be blunted.
Action to Take-->
These stocks are well off of their highs, in large part due to
lofty growth expectations that have failed to materialize. Yet a
move toward more natural-gas-powered vehicles in 2012 would quickly
bring investor attention back to these lagging stocks. As oil
prices move back higher, that becomes a rising possibility.
-- David Sterman
Disclosure: Neither David Sterman nor StreetAuthority, LLC hold
positions in any securities mentioned in this article.