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Oil prices may be down over the last few weeks, but that doesn't seem to be translating to lower prices at the pump so far. And that means that alternative fuel sources are still looking attractive. As the only alternative with a chance to make a dent in gasoline consumption in the next few years, let's take a look at what companies could play a role in natural gas becoming a viable transportation fuel.
Making fuel and building fueling stations
If you want to see the start of a natural gas revolution, you don't have to look any further than Clean Energy Fuels (Nasdaq: CLNE ) . The company owns two liquefied natural gas production plants and 200 fueling stations across North America. That network is growing quickly and financial results are starting to follow.
In the first quarter, Clean Energy Fuels' revenue grew 67% to $65.3 million and the momentum doesn't appear to be stopping. On the company's conference call, management pointed to diesel prices near $4.50 per gallon, and comparable liquefied natural gas from Clean Energy at $2.27 as a driver of momentum for the entire sector.
Questar (NYSE: STR ) is primarily a natural gas exploration and production company but recently it has started building out compressed natural gas stations in Utah. It isn't a pure play on the conversion to CNG and LNG fueling, but Questar will be safer than competitors who still aren't making a profit.
Cheniere Energy (NYSE: LNG ) owns receiving terminals and pipelines that transport LNG to locations near the Gulf Coast. If natural gas fueling catches on, this network could expand nationwide.
Building vehicles to make the transformation happen
Everyone in the trucking industry is taking notice of natural gas, starting with manufacturers. Cummins, Navistar, and Volvo are building new engines to run off natural gas to meet customer needs. With fuel prices putting pressure on profits, trucking companies and buses are naturally the first step to make the transition to natural gas.
Westport Innovations (Nasdaq: WPRT ) is basically an intellectual property company that relies on engine and vehicle manufacturers who use its natural gas fuel technology in their engines. This allows the company to reach lots of customers without investing capital in building engines but the risk lies in relying on others for your success. Cummins is one of Westport's joint venture partners so major manufacturers have taken notice.
UPS (NYSE: UPS ) is another big name that signed a deal with Westport to power their LNG trucks. But big name signings haven't turned into revenue growth or any sort of profit yet. In the fiscal third quarter, Westport's revenue grew just 8.5% to $39.5 million and net loss jumped to $13.5 million or $0.31 per share.
A similar story is playing out in the fuel conversion business at Fuel Systems Solutions (Nasdaq: FSYS ) . The company provides the tools needed to convert your average passenger vehicle to natural gas. But revenue was down 44% in the quarter, and earnings per share fell to $0.02 from $1.59 last year. But that is a profit -- something most of these companies can't claim. And automakers are building their own partnerships for new natural gas vehicles.
Clean Energy Fuels subsidiary BAF, which designs vehicles systems and conversion technology, is working with Ford (NYSE: F ) to develop fuel systems. A ServoTech designed fuel system is expected to be available for the F-450, F-550, and F-650 in June of this year.
These companies all show a lot of promise but investing in them can be tricky because there is very little profit between them.
Investing in the transition
Knowing where a company stands in the transition to natural gas is key to investing in the space. Right now, buses dominate the LNG and CNG landscape while trucking is following fast. Passenger vehicles may be a great idea, but until the fueling infrastructure is built out, I would be wary of companies that rely too heavily on this space.
My pick right now is Clean Energy Fuels because of their focus on fleets and their role in expanding infrastructure. I would like to see the company grow more quickly before I make a real money investment, so for now I will add the company to My Watchlist and give it a thumbs up on My CAPS. Westport is an interesting story and a Motley Fool Stock Advisor pick but I would like to see a move toward profitability before jumping into the stock.