Chart Industries: Bumps in the Road

11/26/2014 8:00 am EST


Gregory Dorsey

Editor and Portfolio Contributor, The Leeb Group

The recent shakeout in the energy sector hasn't been limited to oil producers; everything related to liquefied natural gas (LNG) has also struggled, notes Gregory Dorsey in The Complete Investor.

One such stock—which is included in our small-cap portfolio—is Chart Industries (GTLS), which manufactures equipment used in the production, storage, and end use of LNG.

Its woes come despite LNG's indisputably bright future. Abundant supplies and low gas prices are leading to the speedy adoption of LNG overseas, where the fuel is scarce.

Additional growth potential lies in LNG's appeal as a fuel in fleet vehicles; its per mile costs are just a fraction of gasoline or diesel. This should support development of LNG infrastructure, which is where Chart comes in.

One bump in the road is that several massive LNG projects in British Columbia are on hold pending a resolution of the rates at which they will be taxed.

Another factor is that China recently hiked natural gas prices to non-residential customers, which promoted PetroChina—one of Chart's largest customers—to temporarily halt operations at two plants.

Investors also worry that a recently announced Sino-Russian oil and gas deal will dampen China's demand for LNG.

A recent profit warning from a company that makes natural gas engines reverberated across the industry. Still, as many as 300 LNG fueling stations will likely be added in the next two years alone, to Chart's benefit.

Chart's shares have fallen to seldom-seen valuation levels relative to revenue, free cash flow, and earnings. These levels won't persist.

One of the few remaining stand-alone companies in the sector, and with marketing-leading positions in the regions it serves, Chart is a prime takeover candidate.

With or without a takeover, though, Chart should reward investors, especially if scooped up at today's levels.

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