CHICAGO, June 14, 2011 /PRNewswire/ -- Today, Zacks
Investment Ideas feature highlights Features: Westport
Innovations (Nasdaq: WPRT), Clean Energy Fuels (Nasdaq:
CLNE), Fuel Systems Solutions (Nasdaq: FSYS) and
Cummins (NYSE: CMI).
(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)
Alternative Energy Wars
When our own Mr. Reitmeister went to Washington DC on Wednesday for the White
House's First Personal Finance Online Summit, he reported back on
the administration's "economic All Stars" team and their
initiatives to attack American challenges. Heather Zichal, Deputy Assistant to the
President for Energy and Climate Change, outlined the battle plans
for energy security.
Zichal noted that China has
overtaken the US in terms of energy consumption and that Obama's
goal is to reduce net oil imports by 1/3rd by 2025 with a simple
three-pronged approach:
- Expand domestic oil and gas production
- Encourage smarter consumption
- Energize the quest for alternative sources
What Are the Investment Opportunities?
The good news is that we are in a global megatrend for energy
that rewards those investors with their fingers on the pulse of oil
and gas companies creating earnings momentum. Following Zacks #1
and #2 Rank stocks here for the past two years has been a winning
strategy that capitalized on the strong earnings recovery of many
E&P and integrated names.
The bad news is that because of our nation's dependence on
imported oil from unstable areas of the world, and because
$5 a gallon gasoline is a
consumer-killer -- not to mention the omni-present environmental
concerns -- it is in every American investor's best interest for us
to find long-term alternative solutions.
My focus since October has been on the opportunity that could
kill two birds, namely, the Natural Gas Act legislation that would
provide significant tax and investment incentives to convert
America's trucking fleets to run on natural gas engines. Why is
this such a big deal?
Because we have an incredible abundance of domestic natural gas.
And because it is extraordinarily cheap. And because it has such an
extremely low environmental impact compared to oil and gasoline
production processes and emissions. Need I go on?
So I looked at lots of trades in natural gas E&P firms, and
I also looked at the companies involved in building the engines,
conversion kits, and other infrastructure necessary to use
compressed natural gas (CNG) and liquefied natural gas (LNG) in
trucks and cars safely and efficiently:
Westport Innovations (Nasdaq: WPRT): specializes in
building natural gas engines and has joint venture with Cummins
(CMI)
Clean Energy Fuels (Nasdaq: CLNE): leading provider of
CNG and LNG products for transportation
Fuel Systems Solutions (Nasdaq: FSYS): manufactures
products and systems that allow on-highway and off-highway engines
to operate on clean burning, gaseous fuels such as propane and
natural gas
Political Tipping Point
The problem with investing in these early growth stage companies
on the verge of a potentially explosive industry is that it seems
everything hinges on Congress "doing the right thing." I put that
in quotes because there is a big difference of opinion about what
"the right thing" is in Washington.
Initially, I assumed that natural gas economic incentives were a
no-brainer for our economy and environment and that the only people
standing in the way -- the Nat Gas Act legislation has been pushed
to the side at least twice in recent years -- were big oil
companies with a vested interest in the status quo. Billionaire
T. Boone Pickens seemed like the
archetypal, honest, plain-spoken, patriot who just wanted what was
best for his country.
But there is another economic angle on this besides the vested
interests of political lobbyists on either side. Last month, four
Republican lawmakers who had been co-sponsors of the bill that
Pickens helped engineer withdrew their support on mostly
philosophical grounds. In other words, it's not just crude oil vs.
nat gas. It's free market vs. more subsidies and potentially higher
taxes for some, if not all.
As Mr. Reitmeister asked Heather
Zichal at the White House, "How much does the Administration
believe in the free market to help solve our energy dependence
issues?" If you had asked me a few weeks ago, I would have said
that we need government to be the architect of an energy policy
that creates good catalysts and incentives, instead of just letting
big oil run the show on de facto incentives that are leading to
higher prices, continued foreign dependence, and ecological
threats.
But Steve's point was simply that higher prices should be a
natural trigger for innovators to create solutions. We experience
this phenomena already as triple digit oil spurs investment in tar
sands exploration and solar alternatives. And maybe the purest way
really is the best way. Goodness knows we don't need any more
complicated tax laws or new subsidies for industries in an era when
the country has a debt and deficit crisis.
Cummins Wins Either Way
Still, I think that natural economic incentives that would drive
the massive process of converting trucking fleets to nat gas won't
happen fast enough. Oil might have to go to $150 a barrel to be the "trigger." And that's why
I tend to favor government assistance. But, since this is a debate
I need to learn more about, I will withhold final judgment and
close simply with the best investment idea in this space.
Since all four of the nat gas E&P firms mentioned are Zacks
#3 Rank (hold) stocks, not much stands out there. If you own one,
you might just as well keep it. Regarding the engine makers and
CNG/LNG providers, WPRT and FSYS are both #4 Rank (sell) stocks and
should be avoided now, while CLNE is a #3 Rank.
The one company that does stand out is Cummins (NYSE:
CMI), a Zacks #1 Ranks (strong buy) name. With strongly profitable
conventional engine divisions, it also has exposure to the nat gas
engine industry. If something significant happens on the
legislative front, CMI will likely capitalize since they are firing
on all cylinders anyway. See my article from last week "Industrial
Strength Economics: CAT and CMI" for more on their earnings drivers
in light of emerging markets demand.
When in doubt, don't risk investment capital just to speculate
on future wild cards. Go with the strength of dominant global
companies with the earnings momentum to prove it.
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