Why Cheniere Energy is a stock pick for my long-term portfolio

05/23/2013 7:49 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

On May 20 I wrote http://jubakpicks.com/2013/05/20/a-second-lng-plant-gets-a-u-s-export-license-the-best-stock-pick-on-that-news-is-chicago-bridge-and-iron/ that that the decision to award only the second license to export liquefied natural gas from the United States to the Freeport project in Texas wouldn’t hurt Cheniere Energy (LNG), the holder of what had been the only permit until May 20. Freeport projects that it will be able to ship gas in 2017, I noted, which just draws a line under Cheniere’s projected ship date of 2015.

I’ve spent a few days thinking about that post—in which I added stock pick Chicago Bridge & Iron (CBI), the leading candidate to get the work to build Freeport, to my Jubak’s Picks portfolio http://jubakpicks.com/ And I’ve concluded that I missed part of the Freeport story, which adds even more value to shares of Cheniere Energy. You see Cheniere has a second proposed LNG plant to go with the Sabine Pass plant in Louisiana. This one, in Corpus Christie, Texas, doesn’t yet have an export license. The Department of Energy permit for Freeport with its crucial finding that the export of U.S. natural gas is consistent with the public interest raises the odds that the Corpus Christie LNG plant will get an export permit too. The ruling also increases the odds that Cheniere Energy will be able to easily secure the $3 billion to $4 billion in debt financing the company is currently seeking. Doing that deal as debt rather than equity would prevent shareholder dilution.

All this makes me even more certain that adding Cheniere Energy to my long-term Jubak’s Picks portfolio http://jubakpicks.com// on May 3 as part of my annual revision to that portfolio was the right move.

Right now by date of filing with the Federal Energy Regulatory Commission (FERC), Cheniere’s Corpus Christie plant stands fourth in line of LNG projects awaiting approval from the Department of Energy. Cheniere’s ability to fund production trains 1-4 at Sabine Pass and to line up contracts for the full capacity of those trains certainly won’t hurt Corpus Christie in front of FERC and the Department of Energy. (Cheniere is now moving to add an additional two trains at Sabine Pass.)

Right now it looks like Cheniere has a two- to four-year window before enough competitors in the United States and Australia start production to significantly reduce the extraordinary premiums that U.S. and Australian LNG will earn in Asian markets.

In the near-term, say the next 12 to 18 months, the driver for the price of Cheniere Energy shares will be progress toward production at Sabine Pass and the rising odds that the company will get a second Department of Energy permit for Corpus Christie. Shares of Cheniere Energy traded at $28.55 a share when I added them to the Jubak Picks 50 portfolio on May 3 and closed at $29.92 on May 23.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , I liquidated all my individual stock holdings and put the money into the fund. The fund did own shares of Cheniere Energy as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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