5 Stocks to Buy Before the Election

By Jason Hall - September 25, 2012 | Tickers: CLNE, CMI, F, UPL, WPRT | 0 Comments

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As we get closer to the election, it couldn't be clearer that Congress isn't going to get anything done.  Legislation that could help growing industries expand and create jobs, provide business owners with certainty about taxes and other business expenses, and give consumers a shot of confidence, is not going to happen. 

In turn, consumers feel uncertain about the future, and therefore may not be as likely to spend money.  At the same time business owners are left unsure about the future and don't invest in their businesses.  This cycle feeds itself, hurts the economy as a whole, and drags the market down with it.

Let me be clear- I don't think legislation can, or will, necessarily fix all our economic woes.  Sometimes, the lack of legislation can be just as powerful, if it's a product of our leaders in Washington being decisive.  It's all about the market knowing what government is planning to do.  Uncertainty is poison, and damaging.  Frankly, Congress' inaction on the Natural Gas Act is certainly poisoning companies tied heavily to natural gas. 

But that uncertainty is creating long-term opportunities for investors.

Depending on whom you ask, natural gas is either the savior of American energy, or just another cheap drug to feed our fossil fuel addiction.  It's either the bridge to the future, or it's keeping us from developing clean sources of energy, such as wind, geo-thermal, and solar. There's at least 100 years-worth of natural gas right under our feet, or maybe it's less than half that.  So what's the real story? 

The truth is likely somewhere in the middle.  Natural gas won't be a savior for the US energy economy, but there's little doubt that it won't play a critical role in fueling America's transportation and energy needs moving forward.  With that in mind I have made several long-term investment decisions to capitalize on this fact, and I think you should consider doing the same before the election.  There will continue to be uncertainty in the market as Congress continues to do nothing, and as I said earlier, there's nothing that the market hates more than uncertainty. 

How can I fuel up my portfolio?

Natural gas's use as a transportation fuel has thus far been limited to just a few percent of total output in the U.S, but that's quickly changing. Its viability as a cheaper alternative to diesel for return-to-base vehicles such as buses, garbage trucks, and delivery vehicles has seen massive growth over the past decade.  While this "return-to-base" market is limited, natural gas's use as a fuel for long-range trucking is a burgeoning market, and one that investors should get in on now. 

Westport Innovations' (NASDAQ: WPRT) proprietary technology, used in both in-house manufactured engines, and in co-manufactured engines from Cummins (NYSE: CMI)​ and Weichai Power (China's largest heavy-duty engine maker,) places Westport right in the middle of the largest area of growth in the natural gas revolution.  Factor in additional agreements with Peterbuilt, Volvo, and Kenworth, and all of the big players in the Class 8 trucking business are partnering with Westport for their natural gas truck engines. 

As the premier manufacturer of heavy-duty diesel engines for industrial and commercial vehicles and generators, Cummins' partnership with Westport is just part of the picture that makes this American manufacturing icon a smart investment.  Earlier this year, Cummins announced that it would begin building its own natural gas engine (a 15 liter, spark-ignited design) for the long-haul truck market, in addition to the joint venture with Westport.  And while this separate venture may not be the best thing for Westport, this added diversity is great for Cummins investors.  Factor in the increasing age of the U.S. trucking fleet, and now is the time to buy. 

But it's not just about the big-rigs:  Ford’s (NYSE: F) partnership with Westport for the WiNG edition F-250 and F-350 pickup truck is an indicator that natural gas will continue to expand into more consumer-focused vehicles in the future.  With a strong leadership team in place, and excellent execution over the past two years to prove that this is a company heading in the right direction, I will continue to hold Ford in my portfolio.  Yes, Europe’s recession will continue to bring short-term pains and challenges, but I see Ford as best-positioned of all the major car makers going forward, and natural gas is just part of the equation.  The bottom line is that Ford is producing vehicles that consumers want, and has shown significant growth in terms of both revenue and profit over the past few years. 

But a natural gas vehicle is useless without access to fuel...

This is absolutely true.  ​Clean Energy Fuels (NASDAQ: CLNE) is quickly expanding what it has labeled, "America's Natural Gas Highway," a big bet that the trucking industry will invest in natural gas-powered vehicles using engines built by Westport and Cummins.  With a significant goal of more than 150 refueling stations along the primary cross-country trucking routes, there is definitely risk in this investment.  But with a strong leadership team led by CEO Andrew Littlefair, and several managers and board members (including the inimitable T. Boone Pickens) with substantial personal stakes in the company, the future is as bright as a blue-burning natural gas flame.  Factor in strategic partnerships with Pilot/Flying J truck stops, a well-known player in the truck-refueling business, and this may be the strongest pure-play in natural gas. 

This brings me to the most challenging place to make money in natural gas today: suppliers.  The bottom line is that natural gas is cheap, and for it to remain an economical alternative to diesel, it has to remain so.  However, the prices that we have seen over the past year are not sustainable for natural gas producers, as many are losing money.  Enter Ultra Petroleum (NYSE: UPL).  The low-cost production leader in their industry, they have been able to limit losses by expanding into oil production.  They also have a strong management team, led by 13-year CEO Michael Watford, who personally holds more than 3.8 million shares In Ultra, I expect this company to continue to grow, especially as natural gas grows as a transportation fuel.  That increased demand should help drive up the price, thereby increasing profits. 

Back up the truck!

Here's how that short-term uncertainty has created an opportunity to buy some great companies at a discount:

WPRT data by YCharts

Trying to time the market can be dangerous.  But as the chart above clearly shows, all of these companies can be had at a significant discount from their 2012 highs.  To me, that means now is a great time to add to your holdings, or open a position if you don't already have one. 

Now get out there, do some more research into these companies, and make sure that they are a good fit for your strategy and your portfolio.  I can promise you that they certainly are for mine.

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