Building Castles in the Air

Patrick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

"The difficulty lies, not in the new ideas, but in escaping from the old ones, which ramify, for those brought up as most of us have been, into every corner of our minds." – John Maynard Keynes

With his proclamation of the “Castles in the Air” theory back in 1936, renowned economist John Maynard Keynes made an important observation on how market participants behave looking forward into the future, especially with new concepts that are hard to value by traditional means. Investors tend to build empty, but optimistic, hopes into theoretical castles in the air, which in turn dictate the security’s price in aggregation.

This was perhaps most infamously demonstrated by the dotcom disaster in the early 2000s, when preposterous companies were receiving absurdly high valuations. Needless to say, a castle built solely on hopes and dreams is destined to collapse in due time, leaving its investors buried in the rubble.

However, if a solid foundation for the castle is gradually established during this process of construction, those who invested in the building will be rewarded plentifully. This can be risky business but, as always, it’s only as risky as the factual plausibility dictates.

Clean Energy Fuels (NASDAQ: CLNE) and Zipcar (UNKNOWN: ZIP.DL2) are two companies currently undergoing this manifestation of hope. Both businesses present concepts that could revolutionize the way we know and utilize transportation services, but the worrisome caveat of successful implementation still lingers.

The number of investors-turned-skeptics in these companies has been increasing at an uncomfortable rate, as both companies have begun witnessing deterioration to their proverbial castles. Over the last six months alone, Zipcar's shares are down 21% and Clean Energy Fuel's are down 14%, but is there really no gas left in their tanks, or is this just an ever-too-common reflection of impatience?

Recently coming off a solid quarter in comparison to shakier ones prior, Zipcar seems to have regained traction on the road to riches. Now serving over 760,000 “Zipsters” with its seamless car sharing, Zipcar’s convenience and economical benefits appear to be resonating more strongly than ever throughout its metropolitan markets.

It’s becoming increasingly apparent to residents in dense urban areas that personal vehicle ownership is much more hassle than it’s worth, and Zipcar’s highly advantageous first-mover position in the industry allows them a front row spot in transforming the consumer’s wretched vehicular life. Zipcar’s assortment of vehicle offerings, ranging from BMWs to minivans, also broadens its appeal to a wide crowd, and whether the bar tab’s got your name on it or the kids’ league fees are piling up, freed up cash is useful to most anyone. The majority of Zipcar’s cities are home to millions of drivers and with focused expansion domestically and abroad, the circled green logo could be popping up as quickly as its influx of generation Y customers.

Among the many hot topics in America today, energy independence certainly ranks near the top. While Zipcar is attempting to reduce the issue of vehicle mania in America, Clean Energy Fuels is working to offer a more efficient fuel for vehicles, particularly for those who cruise America’s highways in the trucking industry.

The poster child of Clean Energy Fuels, the American Natural Gas Highway, which aims to provide a network of LNG natural gas station fueling stations across the US for heavy duty fleets, appears to be building out on schedule with the completion of 70 stations this year and another 80 next year to finalize the project.

Interdependence on Westport Innovations (NASDAQ: WPRT) and Cummins (NYSE: CMI) to build out the supply of natural gas engines for Clean Energy Fuels' trucking customers will weigh heavily on the adoption rate of their LNG supply, but Westport and Cummins seem to be matching Clean Energy Fuels' pace with the scheduled debut of the widely applicable 12 liter natural gas truck engine next year. Failure to roll out this engine on time could offset the punctuality of the ANGH and delay profits even further, but if all goes as planned we could see a drastic shift in the trucking industry fueled by natural gas in the next few years.

An investment in either of these companies teeters on the successful implementation and adoption of innovative ideas that test the traditional boundaries of comfort in valuing companies, but with any level risk comes its anticipated level of reward, and history has repeatedly demonstrated that the farfetched ideas of today are often the brilliant ideas of tomorrow.

Whether or not that is the case here, only time will tell; but for these two companies the moats have deepened and their castles in the air constructed, so staying true to the theory, their impendent foundations will determine their game changing capacity.


Patrock19 owns shares of Clean Energy Fuels and Zipcar. The Motley Fool owns shares of Clean Energy Fuels, Cummins, Westport Innovations, and Zipcar. Motley Fool newsletter services recommend Clean Energy Fuels, Cummins, Westport Innovations, and Zipcar. 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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