What do the Insiders at Westport know that you should too?

By Tyler Crowe - July 30, 2012 | Tickers: CAT, CHK, CMI, F, WPRT | 0 Comments

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Whenever you see big movements in insider trading, something has to be up at that company.  So while I was checking in on one of my favorite natural gas companies, Westport Innovations Inc (NASDAQ: WPRT), I came across some pretty interesting news.  In the month of July, one insider gobbled up nearly 600,000 shares with a price tag well north of $20 million.  That is a pretty big show of confidence in what is going on at Westport.

But what could inspire such a sign of confidence in a company that has yet to have a profitable quarter?  There has been so much buzz around anything natural gas as of late, there clearly has to be something special about this one. 

Westport specializes in the design of engines that can utilize natural gas and other alternative fuels.  Much of their work is dedicated to heavy-duty engines.  Westport has multiple partnerships with automotive and equipment manufacturers to help in the development of systems that can use natural gas or multi-fuel systems.  In the past year, Westport has signed partnerships with both Cummins (NYSE: CMI) and Caterpillar (NYSE: CAT) to produce natural gas and bi-fuel engines for heavy equipment.  Engines like these (5 mpg and under) will reap the largest benefits from this revolution, as the differential between highly taxed diesel fuel and the modestly subsidized natural gas will result in drastic drops in fuel prices. For the public who would also like to take part in the natural gas revolution, Westport is working with Ford (NYSE: F) to release a bi-fuel engine in its flagship F-series trucks.  

What makes Westport such an interesting natural gas play is that it is one of the few that benefit from lower natural gas prices.  As the price goes down, the more lucrative it looks for a customer to purchase a natural gas vehicle, and into the realm of Westport.  While gas-producing companies like Chesapeake Energy (NYSE: CHK) are all going to be sweating the 10-year lows in natural gas prices, Westport is going to ride them to the bank (side note: it's partially the producers' fault -- they have been shooting themselves in the foot as they produce without investing enough downstream to create outlets for consumption of natural gas).  This is just what the doctor ordered for a company like Westport to take off like a rocket ship!

The timing for these low prices almost seem serendipitous.  The major hurdle that will keep Westport in check for the foreseeable future is the lack of natural gas infrastructure.  The US currently has about 525 compressed or liquefied natural gas filling stations, not exactly convenient for a natural gas vehicle.  But with such low prices, there's a likely chance that these companies are going to scramble to find outlets for the oversupply of gas.  As these filling stations continue to pop up, so too will Westport’s market share. 

There were several people who believed that the Burr-Menendez-Reid Ammendment to the Senate Transportation bill (the Nat Gas Act) was going to provide subsidies to purchasers of natural gas vehicles and was going to be a major jumping off point for the Westport and the industry as a whole.  The ammendment failed in March.  While it may be a body blow, it certainly is not going to knock out the industry.  More than anything, it will most likely just take a few points off of the growth estimates for the future.

With the future of natural gas looking very cheap and their ability to play the field through partnerships with nearly all major manufacturers, Westport has positioned themselves to be the top player in the natural gas market.  No wonder the insiders are trying to get a bigger piece of pie.

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