Are These 3 Energy Highfliers Right for Your Portfolio?

Vestas Wind Systems, GT Advanced Technologies, and Cheniere Energy have all crushed the market over the past year. Is now a good time to buy, or should you get out while the gettin's good?

Jan 27, 2014 at 9:29AM

2013 was a stellar year for investors, with the S&P 500 up more than 30%. But if you were lucky enough to buy shares of Vestas Wind Systems (NASDAQOTH:VWDRY)GT Advanced Technologies (NASDAQOTH:GTATQ), or Cheniere Energy (NYSEMKT:LNG) any time in the first half of the year, you absolutely crushed it with these returns:

LNG Chart

LNG data by YCharts

With the S&P down almost 5% so far in 2014, some fear that 2014 could see the market decline further. While looking at the big picture is important, even more important is looking at the prospects for the companies you own before making a rash decision to sell out of fear of a market collapse.

With that said, let's take a closer look at these three companies. 

Bright future even without solar?
In 2011, GT Solar changed its name to GT Advanced Technologies, largely based on the potential for the company's new Sapphire products to become a major source for future growth. Tom Gutierrez, GT Advanced Technologies’ president and CEO, had this to say at the time:

We are growing beyond our historic focus on the solar industry to include other growth markets such as the LED industry. We also continue to look for strategic expansion opportunities into other adjacent markets that leverage our core competencies in crystal growth technology and the commercialization of equipment that drives the growth of new industries. Our name is now more closely aligned with our strategic vision and provides a new platform for us to grow and strengthen our global brand.

By January of 2013, shares had fallen 78% since the name change, and the sapphire business -- while growing -- had yet to become a major game-changer for the company. However, the announcement in November that the company would essentially be shifting all its ASF (sapphire furnace) capacity to support a new agreement with Apple, sent the stock up almost 30%, and has largely buoyed the gains from earlier in the year. 

The thing is, there's some lack of clarity as to what the true potential the Apple contract represents. The release said that the deal is a volume play and margins will go down, but it would be "cash positive and accretive to earnings starting in 2014." While profitable from the beginning, there's not much we can tell as to how this agreement will limit GT from developing similar partnerships with other companies.

Almost open for business
LNG exporter-to-be Cheniere Energy started life as an LNG importer, when there was fear of a shortage of domestic natural gas. However, discoveries that there could be centuries' worth of NG in deep shale rock all over the country turned that concept on its ear, and the company began converting its terminal in Sabine Pass, Louisiana, into an export terminal and liquefaction facility before it really ever got going as an importer. With exports not set to begin for at least another year, Cheniere's stock price has moved on news about construction progress, the announcement that the company had plans to add capacity, and the signing of long-term contracts.

Despite a minor -- though expensive -- scare when part of one of the storage facilities recently collapsed, the facility, the first of its kind in the U.S., capable of exporting 27 metric tons of LNG per year, is still on track to start exports next year. 

Not blowing hot air 
Even after 2013's amazing run, investors who bought Vestas shares from 2008 through 2011 are still losing money. The good news is the company looks like it really did take a major step forward in 2013 by adopting the model that Apple has used to become the most profitable company in the world: Let someone else make your stuff. 

Unlike competitors General Electric and Siemens, Vestas does wind turbines, and that's it. When you make one product in an industry that's extremely cyclical, it can be hard to keep enough capacity to satisfy orders when things are good, while also keeping fixed costs low when things are slow. Billions in losses the past couple of years led to major changes, like the decision to sell its tooling & machining business to VTC Partners GmBH in an effort to lower fixed expense.  

Final thoughts: some speculation, but all have their merits
GT Advanced Technologies' deal with Apple raises a lot of questions about the real upside, but there's a lot of potential to walk away from. Management made it clear that it will continue to focus on its SiC and HVPE solar technologies, so Apple's money could pay for innovation in the legacy solar business. 

Cheniere is also a speculative investment that depends on natural gas in the U.S. being cheap and plentiful for many years to come. The good thing is, Cheniere is able to enter into long-term supply contracts at fixed prices, to help keep this a reality. Just remember it's going to be a year before LNG starts leaving the facility to overseas markets. 

As to Vestas, the results are already paying off. On January 6, the company announced that free cash flow for the year would be EUR 1 billion -- as much as double the original projections -- partly as a result of lower costs as well as improved sales results. With 2014 projecting to be a strong year for wind, Vestas deserves a close look, especially with a long-term strategy to sustain earnings, even in down years, now in place.

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Jason Hall owns shares of GT Advanced Technologies, and has Jan 2015 calls for GT Advanced Technologies.. The Motley Fool has no position in any of the stocks mentioned. 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.

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