Investing in Companies That Are Exposed to (But Not Exclusively Focused On) Natural Gas
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The natural gas revolution may be in our midst, but until export terminals get approved by the Obama Administration, or a catalyst for natural gas leads prices upwards, profits may not be realized by companies dealing exclusively with the gas. Impatient investors may feel growing-pains waiting around for the gas to take off- whether for domestic use or for exporting. Natural gas, as a result of the "natural gas highway" will most likely become a major source of energy for the domestic transportation market as well. If looking to invest in natural gas, with less risk and less waiting for capital appreciation, (while still maintaining a significant amount of exposure to the gas) consider companies that will eventually benefit from a natural gas revolution, while also benefiting from other diversified aspects of their businesses in the mean time.
Cummins (NYSE: CMI) is already positioned to be a major player in the natural gas world. Partnering with Westport (NASDAQ: WPRT), they will introduce the first standard 11.9 liter engine that runs on liquid natural gas in 2013. If and when natural gas-powered engines go mainstream in the trucking industry, Cummins is best positioned to profit from it, through sales of their innovative industry-standard sized engines. The company is diversified and is profitable now. Cummins designs, services, and manufactures diesel engines as well; while also dealing in power generation systems- so they are not completely reliant on natural gas, but are definitely set in position to benefit from its rise in popularity. The company recently announced a $1 billion share buyback program, as well.
ExxonMobil (NYSE: XOM) is not only a major blue-chip energy production company, it is also the largest producer of natural gas in the United States. A pop in natural gas means good things, therefore, for the company and its stock. While waiting, however, an investor can also rely on the company's other energy production businesses. ExxonMobil is also a dominate explorer, producer, and seller of oil and petroleum products. The company's downstream business was up $1.6 billion year-over-year at the end of their third quarter, for a total of $3.2 billion in earnings- mostly from an improvement in refining margins. Like Cummins, ExxonMobil is positioned to profit from an upcoming natural gas revolution, but isn't completely reliant on it. Exxon also pays investors a nice 2.58% dividend, with a history of raising their dividend for more than 25 years in a row. You have got to love that track record.
The Bottom Line
Looking to invest in natural gas with less risk and less waiting? Consider companies that have significant exposure to natural gas but aren't solely reliant on it. When looking to invest in producers of natural gas, such as the struggling and natural-gas reliant Chesapeake Energy, consider first diversified companies like ExxonMobil, who will continue to generate profits and create shareholder value even without the aid of increasing natural gas demand. Companies such as Cummins will still make money if natural gas doesn't take off right away, through their diversified offerings in other energy markets, such as diesel. Sure, an investor could buy some shares of Westport to capitalize exclusively on natural gas engines, but the more diversified Cummins would most likely be a safer bet.
The natural gas revolution is coming, but how long it will take is still up for debate. If an investor wants to go all in on natural gas, the Chesapeakes and the Westports are available options as more direct plays. Another method to keep in mind, however, is the option of investing in more diversified companies that have a good exposure to natural gas, but are not exclusively focused on it, which may be the safest and least-stressful way to play natural gas markets.
Jharry1 has no positions in the stocks mentioned above. The Motley Fool owns shares of Cummins, Westport Innovations, and ExxonMobil. Motley Fool newsletter services recommend Cummins and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!