Clean Energy Fuels: Tomorrow's Monster Stock

Stocks climbing to 10 times their original price are rare breeds -- but they're not impossible to find. Especially when you have Fools for friends.

The market's best stocks include companies that have risen dozens of times in value by taking advantage of the market's weaknesses. These aren't penny stocks; they're viable companies with sound business prospects that are achieving phenomenal returns. Finding just one or two of these monstrously-successful firms can help you establish a winning portfolio.

Stalking the monster
To find tomorrow's winners, we've enlisted the help of the monster trackers at Motley Fool CAPS, the 180,000 member-driven investor community where informed opinion is translated into stock ratings of one to five stars. We'll be peering in on the picks of those who have successfully chosen stocks that have doubled, tripled, or even quadrupled in price, and this week, All-Star member MBDixieBlue gives us Clean energy Fuels (NASDAQ: CLNE  ) as his next monster pick. He made his mark with Rosetta Resources (NASDAQ: ROSE  ) , which rose nearly 550% after he picked it to outperform the indexes, compared to the S&P 500's 65% rise.

Of course, you shouldn't jump into the breach just because an All-Star stock picker did. Just consider this as a starting point for your own research of extreme buying opportunities.

A Sword of Damocles
It's the cliched two-edged sword: natural gas prices remain stuck at historic lows ravaging margins at drillers and those subsisting on the industry, but also providing the greatest spur to more investment in the space.

For natural gas to become co-equal to oil as a vehicle fuel, the disparity between prices needs to remain in place. With natural gas below $3.50 per million Btus  and oil trading just under $90 a barrel, the economics of the market make continued investment a profitable venture. Not only is Clean Energy Fuels investing billions in the infrastructure necessary to support what it calls "America's Natural Gas Highway," but corporations with large vehicle fleets are converting their trucks to natural gas, and engine makers are building NG engines.

It's long been a case of the chicken or the egg: Do you build out the infrastructure, or do you first make sure the demand for the infrastructure is in place? With natural gas, it's both.

Revving their engines
Clean Energy is establishing a network of refueling stations across the country, initially for commercial vehicles, but increasingly for consumer cars, as well. Westport Innovations (NASDAQ: WPRT  ) has been the natural gas engine leader, but Cummins (NYSE: CMI  ) , which is a Westport partner, is striking out on its own too, right alongside truck makers Navistar (NYSE: NAV  ) and Peterbilt, as well as heavy-equipment maker Caterpillar (NYSE: CAT  ) .

There are additional, ancillary investments being made at the same time. The country is so awash in cheap gas that Cheniere Energy (NYSE: LNG) is developing an export facility that will bring U.S. natural gas to international markets at a price lower than it can be produced locally. Apache (NYSE: APA  ) had wanted to build an export facility in northwestern Canada using funds from EOG Resources (NYSE: EOG  ) and Encana (NYSE: ECA  ) to finance its construction, but Royal Dutch Shell (NYSE: RDS-B  ) announced plans to build an even bigger one, so Apache scrapped its own.

There's an interest in more export facilities in the U.S., too, but the Obama administration has imposed a moratorium on issuing more permits until it can study the situation, essentially giving Cheniere free rein to run away with the market.

South Africa's synthetic fuels giant Sasol (NYSE: SSL  ) is setting up shop here after years abroad to actually support the traditional transport fuels industry. Its gas-to-liquids technology is feasible here only because of the decoupling that's occurred between oil prices and those of gas .

An arid wasteland?
These days, it seems like the marooned sailor: water, water everywhere and not a drop to drink. We've got gas up the wazoo, but it's breaking down those that drill for it. SandRidge Energy (NYSE: SD  ) has largely abandoned gas for oil, because it's no longer profitable, as has Chesapeake Energy (NYSE: CHK  ) .

All those competing interests explain why Clean Energy Fuels' stock has taken a beating, down 46% from their 52-week high. Yet it continues to invest, recently agreeing to buy two LNG plants from General Electric (NYSE: GE  ) to help it reach its ambitious goal of creating a coast-to-coast network of fueling stations in connection with Pilot-Flying J truck stops by the end of next year .

With market conditions currently in its favor and likely to remain so for some time to come, I'm rating Clean Energy Fuels to outperform the broad indexes. Let me know in the comments section below whether the infrastructure play can achieve its goals before the disparity between oil and gas collapses.

 

A chance for scary growth
The movement toward alternative energy is gaining momentum. One potential opportunity in this field is Clean Energy Fuels, which focuses its natural gas efforts primarily on trucking and fleets. It's poised to make a big impact on an essential industry. Read all about Clean Energy Fuels in our brand-new report. Just click here to get started.


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  • Report this Comment On December 21, 2012, at 1:36 AM, Risky88 wrote:

    I feel that the article told me about the core mission of the company, but not actually a lot about it.

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