To say that natural gas has been on a roller coaster ride for
the past 10 years would be an understatement. Gas prices soared
from $1.96 per MMBtu in early 2002 to a peak of $15.78 in late 2005
and back to a low of $1.90 early last year.
For investors, the ride has been no less wild. Natural gas
explorationstocks were irrelevant in 2002, yet were all the
rage by 2008 when natural gas became a stunningly profitable
business to be in. Then, these stocks fell off investors' radars
again in 2011 when plunging gas prices -- and a plethora of supply
-- pushed nearly all of them back into thered .
Still, the implications are clear. With an abundant supply
(thanks to advanced drilling techniques), it looks like cheap
natural gas is here to stay for the time being. But if the natural
gas drillers aren't makingmoney , then how can investorsprofit
?
Andy Obermueller, editor of StreetAuthority's
Game-Changing Stocks
newsletter, has an idea.
He's identified three urgent and unmet needs that natural gas
can address. [He's actually putting the finishing touches on a
special report on this topic right now.]
One of those needs:
There's still not enough gas stations with natural gas pumps
here in the U.S. to keep up with exponentially expanding
demand.
That's right.
The money to be made is in fuel.
It's still a tough idea for investors to embrace, since most
people don't use or fully understand natural gas as fuel for
vehicles. There are less than 1,000 compressed natural gas filling
stations in the United States, and half of them only refuel
privately-owned fleet trucks. Of course, why bother building a
public liquefied or compressed natural gas infrastructure when
there are only about 150,000 vehicles powered by natural gas in the
nation and most of them are fleet trucks?
The answer is simple.
The way you drive is about to change
Times are changing, and although compressed natural gas (CNG)
automobiles may seem like nothing more than a curiosity right now,
this industry may be more mainstream than most realize.
In fact, Energy Secretary Steven Chu predicts that soon
therewill be a natural gas filling station every 150 miles in the
United States, more than adequate for trucks and cars with a range
of 500 miles.
This means there's a significant opportunity for investors.
Research firm Pike Research also points out that North America's
CNG vehicle growth rate is currently 10% and should keep growing at
this rate through 2019.
Moreover, last year's growth in the number of natural gas fleet
trucks absolutely exploded in the United States. As an
example,
Waste Management (
WM
)
beefed up the size of its CNG fleet by insisting that 80% of its
new truck purchases be CNG-powered vehicles. Several other truck
fleet managers such as
United Parcel Service (
UPS
)
also accelerated their adoption of CNG vehicles last
year.
Most of these fleets have tapped one company to supply the
equipment needed to fuel those trucks...
Being the middleman and loving it
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Clean Energy Fuels Corp. (Nasdaq: CLNE)
is a player in the natural gas industry, but it's in a category by
itself. The company builds natural-gas-powered motors for
cars, but more than that, it owns, operates and supplies more than
270 natural gas refueling stations.
But this description doesn't do the opportunity justice. As the
largest seller of natural gas for vehicles in the United States,
Clean Energy Fuels is in a position to reach its stated goal of
building "
America's Natural Gas Highway
."
The recent numbers from Clean Energy Fuels confirm this growth
trend. In November 2012, the company reported natural deliveries
rose 24% on a quarter-over-quarterbasis to 50.9 million
gallons-- avolume record.
The company has quietly been cranking up its top line every year
since 2005. But it really began to grow in 2010 when fleet managers
finally opened their minds (and wallets) to natural-gas
automobiles. As a result,revenue has grown from $78 million in 2005
to $212 million in 2010 and to what will likely be $326 million for
2012. That's not bad for a $1.2 billion outfit. Next year's
projected sales of $401 million would represent a 23%
improvement.
Some investors may balk at the fact that the company has yet to
produce any net profits. And, that's an understandable concern. A
closer look at its history shows the losses are minimal though, and
if Clean Energy Fuels can just continue to grow its top line, then
its fixed as well asvariable costs may be covered before anyone
expects. Indeed, this neededcatalyst is falling into place right
now.
Tipping point
While compressed natural gas trucks are taking off, it's wasn't
until recently the natural gas industry has started to penetrate
the crucial passenger vehiclemarket in the United States. Now that
it has, however, there's no going back -- drivers should quickly
get spoiled to the fact that CNG costs about two-thirds the price
of gasoline.
One of the early proponents for North America's CNG passenger
vehicle industry is
Honda (
HMC
)
, through last year's unveiling of a natural-gas-powered Civic.
Since then, Honda has sweetened the pot by giving $3,000 worth of
CNG refills to buyers. Chrysler is getting in the mix as well with
a CNG Ram 1500 truck. Though it's being built and billed as a fleet
vehicle, it's the first large natural gas automobile that's also in
high-demand (with a combustion engine) from non-commercial
consumers. And it's not likely the last one either.
The timing couldn't be more perfect. At the end of last year,
the company reported it had finished Phase One of America's Natural
Gas Highway by installing liquefied natural gas stations at 70
Pilot-Flying J truck stops. At least 70 more LNG-refueling centers
are in the lineup for the company this year.
There aren't many lines inbetween to read here -- the automakers
are finally on board, knowing that the filling station
infrastructure isn't in place yet, but confident that it will soon
be. Between the advent of passenger CNG cars and the continued
explosion of fleet CNG trucks, there's enough current and future
business to power Clean Energy Fuels' growth for years to come. In
fact, the company is planning on more than doubling the number of
natural-gas-refueling stations it operates, with a total of 150
expected under its umbrella within a few years.
And let's not forget the company also supplies other CNG
stations, and also performs retrofits for older, gasoline-burning
fleet vehicles. Demand is also growing on those fronts.
I should alsonote that well-known energy investor T. Boone
Pickens is a major stakeholder in Clean Energy Fuels, owning just a
little less than 30% of the company. Given his experience and
knowledge within this industry, his involvement may be all the
tacit endorsement needed.
Action to Take -->
While it won't convincingly turn profitable overnight,
net-positiveearnings are on the horizon for Clean Energy Fuels.
Investors just need to give it a year or more for this growth trend
to really materialize on theaccounting statements. As more
investors continue to recognize that the company is within reach of
its proverbial end-zone, thestock could easily gain between 20% and
25% during the course of 2013, even before the company's first
profit is turned. And after that, expect even more profits down the
road.