One of my favorite teachers used to tell me that "there is
opportunity in everything." This is especially true in the
stock market; as money leaves one asset, it flows somewhere
else. In the case of natural gas, its exceptionally low price
has been driving other investments slowly but surely higher; let me
share with you where the money seems to be flowing…
As we explore the potential benefactors, I want to take you back
a couple years. Perhaps it was elementary or middle school
when you first learned the laws governing matter and energy.
Coincidentally, they actually apply (at least loosely) to the
markets and I thought it would be appropriate to offer those
1. Conservation of Matter
(Energy) - Everything Must Go Somewhere
The first law of energy and matter tells us that nothing really
disappears, it simply moves elsewhere. In the stock market,
when a stock is sold, the proceeds flow into someone's bank account
and the costs out of another's.
With natural gas, the losses (on price) that are being taken by
investors, drillers and speculators are flowing into the hands of
companies that are using natural gas to run their factories or
generators. Utility companies likeCalpine (
) andONEOK (
) burn (to generate electricity), distribute and market natural gas
to the masses and may benefit from lower price natural gas due to
lower input costs, but stable retail delivery prices to the
consumer. Out of all the ways to play cheap natural gas,
these types of companies will most likely benefit the least.
Staying on the theme of moving matter, the next group to
consider are the distribution companies. With natural gas
being inexpensive, demand should rise and volumes increase, which
should be a major motivator for these stocks. The
distribution companies likeDuke Energy (
) (pipelines) andEnterprise Products Partners (
) , an MLP, are providers of processing and transportation services
for producers of Natural Gas Liquids (NGLs).
2. You Can't Get Something for
This law reminds me of the old saying on the trading floor "there's
no such thing as a free lunch." As an investor you must remember
that you can't have return without risk. The more you want to
make, the more risk you will have to take -- period.
To generate energy and get your car moving, you need
input. That could be a push, an engine or even a steep hill;
because free energy is impossible. To power our lives,
we need to pour gas into our fuel tanks, fill up our propane
containers or harness the natural gas that flows into our
The issue is that we "get" our energy from countries that may
not think too highly of us, not to mention they control the cost of
that energy to an extent and thus the cost of our locomotion and
progress as Americans.
The companies that can get natural gas out of the ground and
distribute it at the lowest cost possible to wanting consumers will
benefit from the natural gas revolution that is quietly
occurring. Chesapeake Energy (
) is North America's second largest nat gas producer and one of the
largest private land owners in America.
But perhaps more importantly, they recently partnered with GE to
deploy more than 250 of GE's ecomagination "CNG In A Box" fueling
systems across the United States through 2015 via an affiliate,
Peake Fuel Solutions.
Their goal is to become the catalyst for auto makers to produce
nat gas/petrol cars in the states and then become a key supplier
3. Nothing Is 100% Efficient
This law states that you will lose some energy when trying to
convert one energy source to another. In the market, you may
experience this when you are paying commission and maybe only
getting 95% of your money invested in the asset you want to
When you burn gasoline in your car engine, you are only
capturing about 25% of that fuel's potential energy. For
natural gas, this might be a good thing because it (CNG) can be
produced at about the same cost (or less) and gets better mileage
than traditional gasoline.
In fact, you can store about the same amount of CNG needed to
get typical mileage you would from standard petrol, but at a lower
cost. Because both types of fuels are similar in volume
and mileage, it makes sense to convert vehicles to nat gas.
Real Time Insight
I mentioned that companies likeWaste Management (
) andRyder Systems (
) are converting their fleets to natural gas and thus saving money
As an investor, there is an even more direct way to invest in
this conversion: through the engines themselves. Westport
) is a leading developer of technologies that allow engines to
operate on clean-burning fuels such as natural gas, hydrogen and
hydrogen-enriched natural gas. Back in 2001 they partnered
) to create Cummins/Westport, a 50/50 joint venture to produce
Natural gas engine for industrial and commercial use.
While you cannot invest in the joint company directly, Westport
would be the key beneficiary of a large take-up in machinery being
that the majority of their income is derived from the natural gas
There is a multitude of ways to invest in natural gas, just make
sure you don't get burned in the wrong one.
CHESAPEAKE ENGY (CHK): Free Stock Analysis
CALPINE CORP (CPN): Free Stock Analysis Report
DUKE ENERGY CP (DUK): Free Stock Analysis
ONEOK INC (OKE): Free Stock Analysis Report
WESTPORT INNOV (WPRT): Free Stock Analysis
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