One Energy Stock to Avoid

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Company Cheniere Energy (AMEX: LNG  )
Submitted By: TSIF
Member Rating: 99.91
Submitted On: 5/23/2010
Stock Price At Recommendation: $11.75

Cheniere Energy Profile

Star Rating (out of 5) **
Headquarters Houston
Industry Liquefied natural gas
Market Cap $766 million
Subsidiaries Cheniere Energy Partners (AMEX: CQP  )
Industry Peers Dominion Resources (NYSE: D  )
ConocoPhillips (NYSE: COP  )

Sources: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and Motley Fool CAPS.

This Week's Pitch:
Cheniere Energy, Inc has been very volatile the last two years with some 50-100% short term swings. The foray up above ten has been a tough climb with hedge funds and Cheniere trading punches on how some debt is structured between Cheniere Energy and its affiliates. The debt load on Cheniere Energy held it back hard during the peak of the recession. I won't take a stand on the accounting disagreements. My current downthumb is based on the 17% spike Cheniere Energy had today, (I missed its peak near 25%).

The spike was a result of announcement that "U.S. Department of Energy's decision to grant a subsidiary of the natural gas company's general partnership authorization to export domestically produced liquefied natural gas."

Cheniere Energy would be the first one granted this ability, two other company's have pending applications. The approval is great news for Cheniere Energy, the problem I have is that the target date to refit the facility is 2015. While NG prices in the US remain about 40% below some other countries and the new methods to extract it from shale give the US a 100 year plus buffer, Cheniere is cash poor currently and the benefits will not occur quickly enough to support the share price rise. I expect a decay back down as the time to benefit sinks in. Another possibility is for Cheniere Energy to use the spike to do some dilutive stock issues.

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The Motley Fool is investors writing for investors. Dan Dzombak did not have a position in any of the companies mentioned in this article. Pitches must be compelling, made in the past 30 days, and be at least 400 words. 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.

Read/Post Comments (5) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 25, 2011, at 4:51 PM, rlp2451 wrote:

    I think you should do additional due diligence on how this company is structured and how it maintains cash flow. I am no "banging my fist on the table" sort to buy this stock, but I think you are misleading your readers.

    CQP gets payments from Chevron and Total SA to cover the dividend payment. They have a large debt coming due in 2013, but my guess is they will refinance that when they borrow money to build the export facility. Distributions should rise accordingly after the project is completed in 2015 - maybe not dramatically, but in the meantime I will sit back and collect my 9+% tax-deferred distribtuion, thank you vey much.

  • Report this Comment On May 25, 2011, at 6:56 PM, TMFDanDzombak wrote:

    Note: The article is about Cheniere Energy (LNG), not Cheniere Energy Partners (CQP)

  • Report this Comment On May 25, 2011, at 7:53 PM, TSIF wrote:

    No, No dividend from LNG. LNG is down about 15% in the last two days from the spike and 9.3% from my entry point. I still expect sub $10 soon.

    Thanks for the callout Dan, I had forgotten about the "pitch of the week". Looks like I was a little lite on my word count, but I'm glad you could use it. Thanks!!!


  • Report this Comment On May 26, 2011, at 9:09 AM, rlp2451 wrote:

    The problem is, when you tag companies the headline appears under it's stock symbol as well. So whenever you have a headline that says "One Energy Stock To Avoid", and AOL, The Street, Finviz, and any other news services lists it under "CQP" and "LNG". Many people won't take the time to read the article - or if they do, they will still link the two - and decide that CQP is also one to avoid. Now, you may be saying that in a back-door kinda way, but it is still misleading.

  • Report this Comment On June 01, 2011, at 10:23 AM, TMFDanDzombak wrote:

    "Another possibility is for Cheniere Energy to use the spike to do some dilutive stock issues." --TSIF

    It only took a week to announce a share issue

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