In 2008, a Houston-based energy company saw an enormous
In June of thatyear , natural gas was selling for $14 per
thousand cubic feet. At the time, it appeared the U.S. was going
to run out of natural gas, and it seemed like the perfect time to
build new import facilities and take advantage of increased
However, new hydraulic fracturing (fracking) technology
changed the rules of the game. All of a sudden, natural gas was
plentiful and cheap. As a result, gas prices plummeted.
So what happened to the energy company eager to import natural
As you might expect,shares prices fell off a cliff.
Since then, things have turned around for
Cheniere Energy (
. In fact, thestock has gained an astonishing 2,568% since
bottoming out five years ago.
If you're a regular StreetAuthority reader, you've probably
heard of Cheniere before. In December 2011, StreetAuthority
resources expert Nathan Slaughter recommended Cheniere to the
subscribers of his
Three months later, the stock had more than doubled.
So how did Cheniere achieve such a dramaticturnaround ?
Well, instead of letting its new Sabine Pass importfacility in
Louisiana sit and rust, the company set to work securing
contracts and refitting the facility for the export of natural
By 2016, this facility is expected to export 500 million cubic
feet of natural gas per day. And the company isn't stopping
there: Cheniere plans to build five more facilities by 2019, for
a totalinvestment of $12 billion.
The company hopes to export about 4% of current natural gas
production to hungry markets overseas. Today, European and Asian
markets are willing to pay an average of four times as much as
U.S. consumers for natural gas.
Best of all, Cheniere is the only company given approval by
the Department of Energy to export natural gas. Although
thismonopoly status is unlikely to last forever, itwill allow the
company to basically printmoney as long as it does.
The U.S. government has been slow toissue permits for the
export of natural gas, and U.S. chemical companies like
Dow Chemical (
are pushing lawmakers to limit exports. Chemical companies are
some of the largest domestic consumers of gas -- for instance,
Dow uses 850,000 barrels of oil equivalent per day -- so it's in
their interest to keep supply levels high and prices down.
However, because Cheniere has already received approval to
export, the political pushback should only help the company in
the coming years by creating a barrier to entry for its
Cheniere continues to ink new deals that should serve it well
in the future. Under aggressiveCEO Charif Souki, the company has
signed a $1.5 billionequity financing deal with
. As Forbes magazine recently reported, long-term contracts with
BG Group, Total (
, Korea Gas, India's GAIL, Spain's Fenosa and the U.K.'s Centrica
will earn the company $2.6 billion a year inrevenue when the
Sabine Pass facilityopens in 2016.
Cheniere's stock is up almost 60% since the beginning of the
year, and it's trading near the top of its 52-week range. The
company does not pay adividend , so the stock is more appropriate
for investors interested in growth, not dividendincome .
How much growth are we talking about?
In 2012, Cheniere's revenue totaled $266 million. So all
things being equal, the company's revenue is expected to increase
nearly tenfold (to at least $2.6 billion) by 2016.
While the company will most likely plow a large portion of
this increased revenue into new export facilities and paying
offdebt , shareholders could well be rewarded in the long run, as
the U.S. energy boom is still in the early stages and shows no
signs of slowing down.
Risks to Consider:
While domestic competition will have a tough time catching
up, Cheniere does face competition from exporters based overseas.
There are currently major projects underway in Australia, Canada,
Africa and Papua New Guinea that could compete with Cheniere for
a piece of the lucrative Asianmarket .
Share prices are currently trading at high price-to-book
(P/B ) and price-to-sales (P/S ) ratios (15 and 23,
respectively) in relation to industry peers. These high
valuations increase investor risk at today's prices. In
addition, Cheniere's share price is subject to changes in the
volatile natural gas market, something that is beyond the
Action to Take -->
Purchasing the stock at today's prices is a speculative
investment and only appropriate for investors willing to shoulder
the risk. However, should prices pull back between now and
September -- and natural gas prices tend to rise in fall/winter
months and decline in spring/summer months -- I think buying
Cheniere below $25 per share makes good sense. This share price
is closer to the three-yearmoving average , yet it takes into
account Cheniere's future contracts, monopoly status and huge
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