Westport's Wild Ride
Moustafa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Westport Innovations (NASDAQ: WPRT) shot up over 18% recently with the news of its partnership with Caterpillar (NYSE: CAT). Caterpillar is the largest producer of construction and mining equipment in the world. According to the agreement Caterpillar will also fund development of the deal according to Westport. The agreement covers off-road vehicles, as the price of natural gas is at all-time lows the potential cost savings over diesel is quite large. The agreement is very positive news for Westport in the long term as it’s an entry point into another profitable industry.
Caterpillar sells its machines worldwide and will provide Westport a valuable partner and revenue source, they also open the potential to acquire other major producers of off road vehicles demonstrating that natural gas is a viable option. What I find most interesting is not the surge in price but the news that sent the stock surging. It’s as if the market was begging for something to happen to either send the shares surging or sinking sharply. As many Fool’s I have been following Westport and was rather unconcerned about its recent price drop as neither the company’s fundamentals nor the market had changed substantially. The broader market on the other hand had its finger pressed firmly over the trigger. Westport has a huge market worldwide for its engines and a growth story that is only beginning.
As you watch the market it’s funny how certain stocks fall into a space where any news will send them one way or the other? Though there is risk in the long term prospects for Westport it has set itself up to succeed. This is aided by the fact that the U.S. is no shortage of natural gas. There is more than enough to go around in the near future and with Clean Energy Fuels (NASDAQ: CLNE) creating a natural gas highway a viable natural gas infrastructure is in the works. The idea of creating an infrastructure for natural gas would seem like a huge proposition, but Clean Energy is backed by Billionaire T. Boone Pickens who is amply prepared financially to make this a reality. As the natural gas bandwagon picks up more and more people will jump on and competition will grow. This is where Westport will have the first mover advantage coupled with a huge patent portfolio to protect its innovations. Obviously a risk is that Westport could get out innovated, but looking at their balance sheet they have been un-profitable for several years now ploughing money into research and development. Though it is always easy to say they can be out innovated, to do that in the real world will take a few billion dollars to blow. Even Westport’s main partner until this new announcement Cummins had decided to start development of their own natural gas engines. This could be seen as a risk but could also be seen as a catalyst for adoption of the engines by more and more markets. Even though Westport has a fundamentally sound business with huge growth prospects the market as a whole wants it to fail until it doesn’t. That’s what I find interesting. It’s daring Westport to wait too long to announce a new agreement or for the price of natural gas to shoot up for some reason. We saw this with the steady decline of Westport’ share price recently as there was very little heard from the company.
I do agree that there are risks to Westport’s business but based on its fundamentals, its patent portfolio and the potential growth in the market it not only has a huge upside but the odds are stacked in its favour. I see the company as a screaming buy now for those looking to invest in growth stocks with a great story. The company with its potential upside even considering its recent run is price attractively. You will need to be prepared to ride a roller coaster as any negative news will send shares tumbling until its profit centres grab traction. I liked Westport when I bought it in the mid 30’s, I liked it all the way down to where it was before its most recent good news and will like it all the way till it’s a multi bagger.
mooseelz owns shares of Westport Innovations. The Motley Fool owns shares of Westport Innovations. Motley Fool newsletter services recommend Clean Energy Fuels 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.If you have questions about this post or the Fool’s blog network, click here for information.