Natural Gas Drives These Stocks

07/28/2014 10:00 am EST

Focus: STOCKS

Jim Powell

Principal Analyst, Global Changes & Opportunities

Jim Powell believes we have reached a tipping point in the trend toward using natural gas for transportation. The editor of Global Changes & Opportunities Report highlights a variety of ways to invest in this emerging trend.

Steven Halpern: How are you doing, Jim?

Jim Powell: I'm fine, Steve and how are you?

Steven Halpern: Very good and thanks for joining us. You've called natural gas for transportation one of the hottest new trends to emerge in many years, and you have also noted that the biggest problem that's been holding back this sector is a lack of fueling stations. Could you expand on your overall outlook for the sector and perhaps some of the problems that you see in implementing that strategy?

Jim Powell: Yes. The number of fueling stations is really critical. People in large numbers are not going to switch to natural gas if they're not certain that they can get fuel, but we can see the success that awaits the natural gas for transportation industry by looking at how popular it is with fleets that have their own fueling stations, UPS for example and Waste Management, and several municipal bus systems, and so forth.

They come home every night to their own fueling station and they are finding just tremendous savings in switching to natural gas, so I think we are going to have the same sort of success with the large over land trucking companies and with passenger vehicles coming up second as natural gas fueling stations expand.

I've seen this sort of reinforcing loop in the past and certain technologies and once it gets started, it can be really, really powerful. More stations, more cars. More cars means more stations and it just rolls along from there.

Steven Halpern: Now, for some time you have been recommending several blue chips in this sector and they've done very well. Could you update our listeners on Cheniere Energy (LNG) and Encana (ECA)?

Jim Powell: Yes. Cheniere, of course, is the big natural gas liquefier. They make liquefied natural gas for export. They have got a new plant under construction and another one on the drawing boards.

And with what's happening with Russia threatening to turn its gas off in retaliation for the sanctions or Crimeia, most of Europe is looking for alternative sources of gas and, of course, America has a whole lot of it, so Cheniere has been doing very, very well.

I think it will continue to do well. It's up about 400% for my clients. Encana Energy is a producer of natural gas and gas prices is low. It has not done as well. It is only up about 15%, but as the usage of natural gas increases, I am sure the price will rise as it does for every other commodity.

Steven Halpern: Now looking very specifically at the natural gas for transportation sector, one of the ideas that you like is Cummins (CMI). Could you tell us a little about this company and how it fits into this scheme?

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Jim Powell: Yes. Cummins is a big manufacture of diesel engines, high quality diesel engines. They are highly prized by individuals especially if you are towing a recreational vehicle and of course, Cummins engines power many of the big over land 18-wheelers in America. Cummins also sells his engines all around the world.

Cummins is making a big move into natural gas. It has teamed up with Westport Innovations (WPRT), which is another one of my recommendations, to produce a new engine that will power up the big 18-wheelers that go across the country. In addition, Cummins is coming out with a new what they call a hedgehog engine for very large applications such as in locomotives and in large scale power stations.

Nevertheless, they are intended to be portable and the duel fuel engine will run on both natural gas and diesel, so I think that the most conservative play so it's not a peer play in natural gas for transportation is Cummins, and I really recommend it for long-term.

Steven Halpern: Now you mentioned Westport Innovations and its involvement with Cummins, and along with Westport, you have also been recommending a more speculative play called Clean Energy Fuels (CLNE). Perhaps you could touch on those two companies.

Jim Powell: Yes. Clean Energy is one of the leading producers of the fueling stations. Most of its customers now are the private companies that I told you about earlier that have fleets that return home every night, but they are beginning to build fueling stations across the country as well, and this has tremendous potential.

The company is not profitable because its plowing every dime it can get a hold of into expansion, but revenues are up and for listeners who are interested in this speculative play that could pay off very, very well, I think they want to look at this Clean Energy.

A more conservative company, of course, is the Westport. They have a long history of making natural gas engines and they are designing them, I should say, they produce conversion kits for the conventional engines so they can run on natural gas and a whole lot of other things. Westport has a good clean balance sheet and they are in the position to expand as the market will support them.

Steven Halpern: So in your latest research, you suggest that we have reached a tipping point with natural gas for transportation. In terms of a timeframe, how long do you see that these investment ideas need to play out?

Jim Powell: These tend to be a progressive sort of situation, Steve, where there is a point at which people just look and say, you know, there is a natural gas fueling station between here and where I go most of the time. I think maybe my next vehicle will have natural gas capabilities, and this sort of thing is being done all around the country.

There is no way to know exactly when something will take off, but I do feel pretty comfortable that within two and a half, perhaps three years, we are going to see just a tremendous growth in natural gas vehicles. Investors really need to be in place before that starts because, once it gets going, I think it will attract a lot of attention.

Steven Halpern: Well that's a fascinating topic and we really appreciate you taking the time to share your ideas.

Jim Powell: You're welcome, Steve.

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