The Sensible Way to Play Natural Gas as a Fuel

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While most investors want to play Clean Energy (NASDAQ: CLNE) or Westport Innovations (NASDAQ: WPRT) to gain exposure to the natural gas as a transportation fuel concept, the sensible way is Chart Industries (NASDAQ: GTLS). The former stocks remain highly unprofitable and very speculative while Chart continues to spin-out huge profits supplying the build out of the use of natural gas as a fuel.

The company is a leading global manufacturer of highly engineered equipment used in the production, storage, and end-use of hydrocarbon and industrial gases.

Chart also provides access to surging demand in Asia where countries such as China are moving forward with LNG in spite of higher prices on the fuel in that part of the world.

Recent announcements

As an example of the work being done by the company, it has made several recent announcements that highlight the plans in this sector:

LNG Truck Fuel System - the fuel system has been integrated into a self-contained unit for simplified and expedited installation, as required by high-volume assembly lines. Additionally, the maximum single tank capacity has been increased to greater than 100 diesel gallon equivalent ("DGE") enabling extended driving range without the cost of an additional tank.

Chinese LNG contract – the company was awarded a $40M contract from PetroChina to provide self-contained LNG station modules, storage tanks, and vehicle tanks for LNG service.

Q4 segment breakdown

The company reported roughly $139M in sales from the LNG business and nearly $95M from the Energy & Chemicals segment. The smallest division is the BioMedical group that reported $70M in sales.

Chart has a strong backlog and guided to net sales of $1.25 billion and earnings of around $3.10 in 2013. With the stock around $80, it isn’t cheap by most measures. Though the forward PE is only 18 providing some value considering the long-term growth rate is around 25%

Clearly anybody wanting a pure play LNG supplier will need to invest in Clean Energy or Westport, but this company provides for solid, profitable growth at a reasonable price.

Which company is the most compelling?

The other two companies have compelling concepts, but investors have to be warned that both are reporting huge losses to build out next generation engines and LNG fueling stations.

Clean Energy is quickly building out America’s Natural Gas Highway network to provide fueling options for long haul truckers. While a great concept the company is burning cash at an alarming rate with large losses forecast for the next two years.

Westport Innovations is a global leader in natural gas engines that is building a 12-litre engine via a joint venture with Cummins in order to meet the needs of the long haul sector. The company as well expects huge losses over the next couple of years with plans of turning a profit in 2015.

The chart below highlights how the profitable stock provides a more solid investment thesis. Sure the two speculative plays might generate some huge returns if the business takes off, but investors risk significant losses if the cash flow isn’t turned around:

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GTLS data by YCharts

Bottom line

Chart Industries provides a less risky investment into the highly speculative and potentially lucrative LNG infrastructure build out. Chart also provides access to the Chinese market that appears 1-2 years ahead of the domestic plans.

Unlike Clean Energy and Westport Innovations, the company is already very profitable providing downside protection if domestic natural gas prices soar or oil plunges sapping domestic demand for LNG. Also, the Chinese market provides diversification away from 100% dependence on the domestic market as with Clean Energy.

Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned. The Motley Fool recommends Clean Energy Fuels and Westport Innovations. The Motley Fool owns shares of 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!

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